A retired Brownsville businessman has begun a plan of giving back to the community where he grew up by making a donation in the “multiple hundreds of thousands of dollars” to the Brownsville Community Foundation, the largest donation the foundation has ever received.
Steve de La Garza, who now lives in San Antonio but who wants his donation to have maximum impact in the community where he made his money, made the donation through a donor-advised fund, said Diane Milliken Garza, PhD, executive director of the Brownsville Community Foundation.
Donor advised funds offer significant tax advantages to the donor and allow the foundation to grow the funds donated more efficiently, she said.
For example, if a donor were to sell securities valued at $100,000 with a cost-basis purchase price of $10,000, and donate the proceeds to a charity such as the BCF, the donor would pay capital gains taxes of $21,420, leaving $78,580 net to the charity, according to information provided by Garza from the National Philanthropic Trust.
But if the donor, through a donor advised fund, contributes the appreciated securities directly to the charity, which the Internal Revenue Service allows, he or she would pay no capital gains tax, leaving $100,000 net to the charity.
Garza said donor-advised funds allow the donor to grow their charitable dollars tax-free.
“The charitable dollars in your donor-advised fund (DAF) can be invested before they are granted out. With market growth, your DAF balance can also grow. This makes even more money available for grant making. Moreover, while you can take an immediate tax deduction for the gifts you make to your DAF, you will not be taxed on any growth, since the assets belong to the DAF’s charitable sponsor,” the fact sheet Garza provided states.
The Brownsville Community Foundation was created in 1997 to provide an enduring, sustainable structure for encouraging community philanthropy and improving the lives of people in Brownsville, its website states.
“What’s so great about a donor-advised fund is that because it’s done through a public charity, your tax exemption as a donor is as high as you can get through the IRS. There’s no way to get a higher tax exemption. And you can give up until the day your taxes are due, until you know how much you’re going to owe and then make your donation, but you don’t have to do a grant at any time until you decide you are ready to grant,” Garza said.
DAFs are particularly useful in minimizing tax liability after a windfall event such as selling a business or experiencing strong market returns.
“DAFs allow you to recommend grants to your favorite charities over time, so you can pre-fund years of giving with assets from a single high-income event,” the fact sheet states.
But Garza said philanthropic giving doesn’t have to be just for high income individuals. Instead she advocated being an “everyday philanthropist” by taking a directed approach to charitable giving.
“You can be an everyday philanthropist, you don’t have to have the kind of wealth that could create a private foundation,” she said. “A private foundation is not even treated as well by the IRS as a public charity because that’s usually somebody trying not to pay taxes, whereas a public charity is people that want to give back in general, so it’s like I don’t know any other way to feel good about yourself as well as being an everyday philanthropist makes you feel. Even giving a dollar to somebody at the red light it makes endorphins. It just makes people feel good,” she said.
“I think just the word philanthropist feels like Oh you have to be a wealthy person, but that’s why I like to say everyday philanthropist. The truth is we’re all philanthropists every day in our everyday life to a certain marginal point, but doing something like this where you think out your course of philanthropy, if you organize your own thoughts and make a little plan. It doesn’t even have to be a huge plan and you don’t have to have a whole lot of money to do it,” she said.
Garza said the IRS minimum for a personal DAF is $5,000, which is comparable to the amount many people spend over one or two years contributing to various causes.
“Every time you buy a ticket to support something, that could be done through your donor advised fund where you have already gotten a tax exemption for that money. That money would be invested with all the other people in the community that have given their money to the Brownsville Community Foundation, so it all grows and the growth is not taxable either.” she said.
People think they can’t be a philanthropist, it’s too powerful of a word and I can tell you on our local nonprofits when we do our initiatives (such as the Brownsville Big Give, where people donated to local non-profits) I think the highest we’ve ever been able to give away when we did collaborating groups was $7,500 per non-profit, but that kept a lot of nonprofits open through the pandemic. That pays the salary of some workers … and keeps the lights on,” she said.
Garza said donor-advised funds have become a preferred way across the country of donating to community foundations like the BCF. She said the BCF has about 12 DAFs including one by a donor who recently established a $60,000 fund but wanted to remain anonymous.
In all the BCF controls about $3.5 million in assets at current market values, or $5 million at values the stock market achieved before starting to slide in January.
The two donations put the BCF in a much better position financially, and all of the funds that the foundation holds are dedicated to the community, everything from the Brownsville Wellness Coalition to Friendship of Women to Catholic Charities to the Museum of Fine Art to the zoo the Camille Playhouse, Garza said.
The BCF board of directors incudes Carlos Varela, Marcela Hinojosa, Jennifer Sampayo, John Cowen and Wichis Diez.
“No one else does this. What makes a community foundation so unique is because the donations are given by people that live in that community area, so they know where the needs are and they want their philanthropic dollars to go to things that support that immediate community.” Garza said.
“And that’s another reason: the IRS gives such a great tax exemption. You can literally get back, you can take credit for, up to 60% of your earned income in one exemption. I mean you have to be in the right tax bracket and have somebody set it all up for you. It’s amazing the amount of money the IRS will let you get out of paying them. It’s almost like you can’t understand why anybody would want to pay taxes, because they can put their money into a donor-advised fund,” she said.
