New account type for Donor Advised Funds (DAF)

DavidZ123

I have used account type "Other" and checked the "Keep separate" checkbox so that the value there is not included in my net worth, etc. It works OK. But a separate account type DAF would make sense - for instance, donations from an investment account would automatically be charitable donations as a tax status consideration.

DavidZ123

Of course we don't own a DAF, just advise for it. So I have made an account that is "separate", and is properly not included in net worth, etc. Still, it seems as though there should be another account type (DAF). Yes?

Tom Young

"I have made an account that is "separate", and is properly not included in net worth, etc."

I probably would opt for a new Quicken file with that account inside it, but I don't know that's there's any legal obligation to do so. 

Quicken is a retail-level accounting program for personal finances and really isn't geared for a charitable organization.  That said, I'd doubt if Quicken could ever be persuaded to create a new file type of DAF. 

I'd simply set it up as an investment Account since, presumably, it will earn income through interest, dividends, capital gains and so forth, and periodically sell securities for cash to be passed out to charitable organizations.

RickO

For those that aren't familiar, a DAF isn't a charitable organization in this context. A DAF is an account (normally held at a financial institution) to which a person (donor) contributes and receives an immediate charitable deduction for the full amount. The donor no longer owns those assets, but retains control of how those assets are invested and "advises" when the DAF should make disbursements of those funds to 501(c)(3) charitable organizations. In practice, the donor fully controls how the funds are disbursed, but does not retain actual ownership of the funds. There is no tax deduction for the donor at the time of disbursement. DAFs are commonly used as a way to bunch multiple years of charitable contributions "up front" in order to break through the standard deduction but to spread the actual donations out over some number of years.

All that said, I see no reason to separate the DAF out into a separate file. In my Quicken file, I show the DAF as a "separate" account as David does, so that it's not counted in my net worth. As for the account type within Quicken, in my case, the brokerage holding the DAF doesn't provide download ability and I see no real value in recording all the details of transactions, gains, losses, etc. of the DAF in Quicken since there are no taxable events (to me) occurring within. It would be a bunch of manual entry work with no real benefit, duplicating the same info that's available on the DAF website. I am content to let all records be held on the website. Therefore, I made the account type a simple "Asset" account and periodically record balance adjustments to reflect the current market value.

If you do wish to record all the details in Quicken, then I'd just make the separate DAF account type Investment > Other. All investment type accounts in Quicken Mac are treated the same with the same types of transactions allowed, reports available, etc. The "Other" is just a label, and that's the closest we have available for a DAF. Investment transactions (dividends, buys, sells, etc) are no different than any other brokerage account. When the DAF makes a donation, you would reflect that as a Payment transaction. You would probably want to create a unique Category for those transactions since (to you) they are not actually charitable donations and therefore you wouldn't want to use your regular Charity category.

RickO

UPDATE: I didn't see your first post until after writing this (since you split your posts, hopefully now merged). I don't see the benefit of a special account type for this. Here's why. There is no other account type in Quicken that automatically categorizes incoming transactions, so I don't think that aspect would ever happen. Then the account type DAF just becomes another label, as mentioned above. People can probably think of 100 other seldom used labels that they'd like to see, and that would make the investment account type list unmanageable. Thus the catch-all type of Other.

When you make a charitable transfer from your investment account to the DAF, show it in the investment account as a Payment with category Charity (or whatever your charitable category is called). You can also show it as a Transfer to the DAF (at least until Quicken removes the ability for transactions to have both a category and transfer simultaneously). Presumably this doesn't happen that often.

NotACPA

A DAF should, actually, be in a separate QMac data file ...  since you no longer own the funds and they're no longer a part of your net worth.

With that done, a contribution to the DAF would be recorded as a Charitable donation expense.

THUS, the separate DAF account type is no  longer necessary.

RickO

I respectfully disagree. I think keeping it as a separate account in the same file to reflect that you don't own it and it doesn't contribute to your net worth is just fine. That eliminates the hassle of a separate file for one account.

For now, in QMac you can show the donations to the DAF as a transaction with BOTH a category (charity) and a transfer. However, that's not in keeping with accounting standards and the product manager has indicated that this ability will eventually be removed in QMac. At that time, you would want to show the donation as simply a Payment (expense) with a charitable category and note in the memo that the funds were transferred to the DAF. In the DAF account, you would manually enter a reciprocal transaction showing the deposit of funds.

DavidZ123

I'm with RickO. I like separate account in same file, so you can transfer funds from your taxable account to your DAF and have it show as a transfer. You just mark the DAF account as "separate", do not include in net worth.

Hey waitasec!!! Can you have your product manager consider a better approach? DAF (these are very popular and many of your customers have one) should be a new account type. It should by definition be kept separate for accounting purposes, not included in net worth or any reports, and transfers to it should be actual transfers, and categorized as charitable by default. This would eliminate the extra entry, possible errors etc., and, I think, be most appropriate from an accounting standpoint.

It should also allow some other things that are now popular with DAFs, such as recoverable grants as investment types.

RickO

I am told that in the Win version, while you can't have both a category and a transfer in a single transaction, you can designate a tax-item on a transfer. That's what we really need on the Mac side.

Frankx

I also agree (w/RickO) on the issue of whether to have a whole separate datafile or to include the DAF as a "separate" account in your current Q datafile.

Most folks with DAF's want to track it, both so that they know how the DAF's  investments are doing, and they know how much money is available as they direct the future donations.  DAF's, especially if funded with appreciated securities, are both a wise tax move and a great way to fund nonprofit causes one believes in.

Frankx

Rocket J Squirrel

RickO said:

I am told that in the Win version, while you can't have both a category and a transfer in a single transaction, you can designate a tax-item on a transfer. That's what we really need on the Mac side.

This feature is most commonly used to associate IRA distributions (transfers out) with Form 1099-R. It can be used for cash transfers in to a DAF account like this:

But there is no way to automatically account for securities moved into the DAF because that is not a "transfer" in QWin, it's a shares out/shares in pair.

DavidZ123

I agree with RickO and Frankx; the best approach is a DAF account in your normal file. It just makes sense because you can transfer assets out of your investment account into your DAF account and it it makes a matching transaction. Interestingly, when I try a "transfer" of stock, it accepts the transaction but changes the transaction type from "transfer" to "remove shares", and makes a matching "add shares" in the DAF.

I would post an image of it but I'm not familiar with adding an image here.

Frankx

Rocket J Squirrel said:

RickO said:

But there is no way to automatically account for securities moved into the DAF because that is not a "transfer" in QWin, it's a shares out/shares in pair.

This is true, but you would not want to record the "in-kind" donation of shares to the DAF using the "transfers out"(i.e. shares out/shares in) anyway.  The reason is because that transaction would be at your "cost" basis of the shares which, in most cases if not all cases, would be: a) less than the amount of charitable contribution deduction you'll get on Schedule A, and b) also less than the opening balance of the DAF fund.

Frankx

DavidZ123

Frankx - that's another good argument for a new DAF account type and a new "transfer-donate" type of transaction. As you know what really happens when you donate appreciated shares from taxable to a DAF, they are removed from the taxable account, you receive a charitable donation deduction for the (number of shares) times (average of high and low share price on day you lose control of the shares, usually the same day you donate) and later, usually several days later, the shares are sold by the DAF sponsor and you get that (generally different from the deduction amount) amount in your DAF to advise.

DAFs are common now. Would be great to account for them properly.