Author Topic: Donor Advised Fund (DAF) for Synagogue Dues for Tax Management  (Read 7402 times)

madamwitty

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Donor Advised Fund (DAF) for Synagogue Dues for Tax Management
« on: October 24, 2016, 07:33:14 PM »
I am considering starting a donor advised fund this year from which to pay my annual synagogue membership dues in future years. This way I can front load my income tax charitable deduction in a high income year (25% federal bracket + 9.3% state bracket) and use the money in my FIRE years (low tax bracket and/or no itemized deduction). Does this strategy make sense or there any hidden "gotchas"? Has anyone done this or something similar?

IRS has ruled that synagogue dues (but NOT tuition fees) are allowable as charitable deductions, but I have not found definitive documentation that IRS allows synagogue dues to be paid out of a DAF. (I have found a few random internet sources but nothing really official-looking.) Other concerns are that the DAF organization (which in fact has total legal control of the money) could say "no, we won't do that, pick another use for the money", IRS interpretation could change, or the money might not be recognized by my synagogue as a donation on my behalf.  I'm wondering if you folks have answers to any of these concerns.

I am also thinking about which DAF manager to pick. I've seen somewhere that Vanguard offers this, but that the minimum initial contribution has to be at least $25,000 (I am looking for something more like $10,000 this year, possibly the same amount again for the next few years depending on circumstances.) Recommendations? Any particular things to watch out for?

terran

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Re: Donor Advised Fund (DAF) for Synagogue Dues for Tax Management
« Reply #1 on: October 24, 2016, 09:50:12 PM »
While a DAF is a great way to get a tax deduction while in a high tax bracket, and continue to give when in a low(er) tax bracket, I believe there are rules against getting something of personal benefit in return for funds distributed, so you should probably look into that, especially if the dues you pay could be construed to have a personal benefit (meals, etc). I know my in-law's synagogue often has lunch after saturday services -- not sure what the financial arrangement is, or if that could be considered a personal benefit of paying dues, but just something for you to look into.

madamwitty

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Re: Donor Advised Fund (DAF) for Synagogue Dues for Tax Management
« Reply #2 on: October 25, 2016, 11:16:32 AM »
While a DAF is a great way to get a tax deduction while in a high tax bracket, and continue to give when in a low(er) tax bracket, I believe there are rules against getting something of personal benefit in return for funds distributed, so you should probably look into that, especially if the dues you pay could be construed to have a personal benefit (meals, etc). I know my in-law's synagogue often has lunch after saturday services -- not sure what the financial arrangement is, or if that could be considered a personal benefit of paying dues, but just something for you to look into.

Thanks for your comment.

I know for a fact that synagogue dues are an allowed charitable deduction for normal taxes deductions. According to the IRS, the only benefit conferred is a "spiritual benefit" which is allowed :-) As for meals, etc., those are either free and provided to all attendees  - member or not - or it is a special event where you have to pay a separate fee and those fees are not tax deductible. They are not predicated on having paid membership dues.

I would assume that DAFs have the same rules for distributions (i.e. membership dues are an allowed charitable distribution) but as I mentioned, I have only found some random internet sources claiming they are - nothing really official looking...




terran

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Re: Donor Advised Fund (DAF) for Synagogue Dues for Tax Management
« Reply #3 on: October 25, 2016, 11:51:47 AM »
I guess my point is I wouldn't assume, I'd make sure. You might check with the sponsor you're considering opening the DAF with. I think this is what I had read: https://www.philanthropy.com/article/Opinion-Strings-on/232197 -- it seems to indicate that that a DAF often has more restrictions than regular charitable giving like the example of receiving tables/meals at a gala event despite the purpose being obviously charitable since the value of the meals is no where near the amount given.

tonysemail

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Re: Donor Advised Fund (DAF) for Synagogue Dues for Tax Management
« Reply #4 on: October 25, 2016, 12:14:23 PM »
do other members in your synagogue use DAF for this purpose?
I'd ask around and see.

I started a DAF this year for the same purpose - to front load charitable deductions in working years.
I chose Fidelity because of the lower minimum contribution and also because they are the biggest DAF administrator.

I use mine to donate tax efficiently to the local public school that my kids attend.
I think I stretched my dollars 2:1 by donating appreciated ESPP, which allowed me to avoid paying capital gains on them.

So far, I have not had any problems with my grant recommendations which included donations for a school walk-a-thon.
keep in mind that DAF admins have market incentive to approve grants.
while they must obey the law, they can't be overly conservative or people will stop using their service and choose a competitor's.

madamwitty

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Re: Donor Advised Fund (DAF) for Synagogue Dues for Tax Management
« Reply #5 on: October 26, 2016, 12:26:49 PM »
I guess my point is I wouldn't assume, I'd make sure. You might check with the sponsor you're considering opening the DAF with. I think this is what I had read: https://www.philanthropy.com/article/Opinion-Strings-on/232197 -- it seems to indicate that that a DAF often has more restrictions than regular charitable giving like the example of receiving tables/meals at a gala event despite the purpose being obviously charitable since the value of the meals is no where near the amount given.

Thanks for the link. Agreed about the need to confirm this with the DAF sponsor ahead of time!

do other members in your synagogue use DAF for this purpose?
I'd ask around and see.

I started a DAF this year for the same purpose - to front load charitable deductions in working years.
I chose Fidelity because of the lower minimum contribution and also because they are the biggest DAF administrator.

I use mine to donate tax efficiently to the local public school that my kids attend.
I think I stretched my dollars 2:1 by donating appreciated ESPP, which allowed me to avoid paying capital gains on them.

So far, I have not had any problems with my grant recommendations which included donations for a school walk-a-thon.
keep in mind that DAF admins have market incentive to approve grants.
while they must obey the law, they can't be overly conservative or people will stop using their service and choose a competitor's.

I don't know about other members at my synagogue - but the financial officers for the synagogue would know! They may also be able to suggest a DAF sponsor that could do it.

And if all else fails, I could repurpose the money to my kids' school (where I donate anyway.)

madamwitty

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Re: Donor Advised Fund (DAF) for Synagogue Dues for Tax Management
« Reply #6 on: November 01, 2016, 12:52:41 PM »
I found some documentation that makes me feel a lot better about this working.

Schwab Charitable Granting Guidelines
Quote
Membership fees or dues to houses of worship where the only return benefits are intangible religious benefits under federal tax law may be paid from donor-advised fund accounts.

Fidelity Charitable Gift Fund Policy
Quote
Gift Fund grants may be used to pay a 100% tax-deductible membership level fee as determined and specified by the institution (those membership categories where all of the benefits received are considered incidental).

Vanguard Charitable Policies and Guidelines
Quote
Grants supporting a membership may be approved as long as the membership or giving level is 100% tax deductible and any related benefits are not more than incidental.

Of course, all of these say grants "may" be approved, so I'll feel better if I can find an example where a fund sponsor actually followed through on making a donation to my specific Temple. I have a query out to my Temple's bookkeeper along those lines.

seattlecyclone

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Re: Donor Advised Fund (DAF) for Synagogue Dues for Tax Management
« Reply #7 on: November 01, 2016, 01:07:27 PM »
My understanding is that they say "may" for CYA reasons. Legally speaking, once you put your money in a DAF, it isn't yours anymore. You have no right to demand that anything in particular be done with that money, and they need to be careful to avoid suggesting that they aren't the final decision-maker with regard to where the money will go. It's a Donor Advised Fund, after all. In practice, you can tell the fund "hey, I think it would be good to give $x to my synagogue, which just happens to be a 501(c)(3) organization" and they will generally say "yeah, sounds like a great idea to us!"

That said, I agree that asking other synagogue members and/or leaders about their experience with each of the funds would be a prudent thing to do.

madamwitty

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Re: Donor Advised Fund (DAF) for Synagogue Dues for Tax Management
« Reply #8 on: November 03, 2016, 05:27:52 PM »
My understanding is that they say "may" for CYA reasons.

I suppose you're right, thanks for the reassurance :-)

It sounds like most of the folks in my synagogue who use a DAF go through the Jewish Community Foundation - Los Angeles which sounds ok, but has higher fees and worse investment options than the big national (non-Jewish) organizations. Actually "worse investment options" is an understatement, as a fund with less than $50,000 balance has only one investment option:"Cash Equivalents & Government Securities".

I might go with Fidelity. It only requires a $5,000 initial balance as opposed to Vanguard's $25,000 (I'm planning ~$10,000). I reassure myself with the thought that if it doesn't work out, and I'll can still use this DAF for donations to my kids' school over the next n years, which I'd be doing anyway. And if I still have a high enough income to do this again next year (as expected), I always have the option to start up a new DAF elsewhere.

CanuckExpat

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Re: Donor Advised Fund (DAF) for Synagogue Dues for Tax Management
« Reply #9 on: November 05, 2016, 12:14:55 AM »
Nothing to add about your specific charity, except I have found the email response from Vanguard Charitable very quick and helpful. I am sure they could give you an answer (FYI at VG charitable: $25,000 minimum initial donation, $5,000 minimum donation in any subsequent year, $500 minimum grant amount).

Been using them for the same purpose you mention, front load charitable giving in high income year for tax purposes and very happy with the result (and tax refund). Don't forget you can donate appreciated shares if you have them.

Penny Lane

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Re: Donor Advised Fund (DAF) for Synagogue Dues for Tax Management
« Reply #10 on: November 05, 2016, 11:36:52 AM »
I have used Fidelity DAF for some years now; I don't know the current initial contribution required, but it was certainly no where near 25K.  I can invest in an index fund after contributing so the money can grow in there, too.  I shift some $ to the fund from my taxable S&P 500 whenever it goes up a certain amount.  The minimum contribution I can make to an organization is $50.  Very easy to "request a grant" on line.  I think any contribution to a religious org would be fine, whether they want to call it dues or for the general fund etc.  I believe there is an annual fee, but perhaps $25-30? 

Rocketman

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Re: Donor Advised Fund (DAF) for Synagogue Dues for Tax Management
« Reply #11 on: November 08, 2016, 08:02:39 PM »
One thing to look for... I believe I read somewhere that DAF need to pay out the funds in 5 years from when it is received.  If that is true it may (or may not) have some bearing on your decisions.

madamwitty

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Re: Donor Advised Fund (DAF) for Synagogue Dues for Tax Management
« Reply #12 on: November 09, 2016, 12:11:40 PM »
One thing to look for... I believe I read somewhere that DAF need to pay out the funds in 5 years from when it is received.  If that is true it may (or may not) have some bearing on your decisions.

Thanks for the heads-up. I have noticed some organizations say that a grant has to be made at least every X years. I haven't noticed any more stringent requirements about depleting the account entirely, but I'll keep my eye out. While DH and I are still both working, I'll probably make all my normal charitable contributions out of the DAF and contribute even more to the DAF at end of year for the tax deduction. Simpler for record keeping, and in some ways more flexible.