Donor-Advised Funds: A Smart Way for Restaurants and Franchises to Give Back and Get Tax Savings

At a glance: 

• The main takeaway: For restaurant and franchise owners, philanthropy isn’t just about giving; it’s about strengthening ties with their larger community and building a legacy. Donor-advised funds (DAFs) offer owners a tax-smart, flexible way to accomplish those goals.
• Impact on your business: In this article, you’ll learn how DAFs can help you give back strategically without increasing your tax burden.  
• Next steps: Contact Aprio’s Restaurant, Franchise, and Hospitality team to learn more and get a head start on planning for your financial future.

Whether you run a family-owned restaurant or operate a franchise location, you’re a business leader who plays a significant role in your community. For you, community support and philanthropy can take a range of different forms, from sponsoring your local youth baseball team to hosting fundraising nights at your restaurant. 

Finding ways to give back is easy, but it can be more difficult to structure your charitable efforts in a way that both maximizes your community impact and mitigates your tax liability. A donor-advised fund (DAF) can be the vehicle you need to accomplish both goals. 

What is a donor-advised fund?

DAFs offer a flexible, tax-advantaged way for you to support the causes you care about on your own timeline — a feature that is particularly beneficial if your income or cash flow fluctuate from year to year. In terms of its practical usage, you can think of a DAF as a charitable investment account. You can establish the account through a sponsoring organization (like a community foundation or financial institution) and contribute cash, stock, or even specific business interests. 

What makes DAFs different from contributing directly to a nonprofit? The answer is flexibility. With a DAF, you can lock in immediate tax benefits when you make the contribution but take as much time as you need to decide which organizations to support.

Why DAFs make sense for restaurant and franchise owners

As a restaurant or franchise owner, you are probably used to dealing with cyclical or seasonal income. But unpredictability shouldn’t prevent you from contributing to the causes that align with your brand values and local community relationships. Fortunately, a DAF will allow you to front-load your charitable giving efforts in high-profit years and then gradually distribute funds to organizations of your choice in future years.

Furthermore, a DAF allows you to set aside funds in advance and ultimately create a steady pipeline of support. By front-loading your philanthropy, you can achieve optimal tax efficiency, while continuing to prioritize long-term community engagement.

Aside from these benefits, DAFs provide multiple tax advantages that can be valuable for restaurant and franchise owners specifically, including:

• Ability to Donate Appreciated Assets: In addition to contributing cash, you can donate appreciated assets — like stock or even business interests — to your DAF. By donating appreciated assets, you can avoid capital gains tax on your contributions while still securing a deduction for the fair market value of your assets.
• Convenient Timing: With a DAF, you can make contributions in a profitable year for your restaurant or franchise and then spread your charitable giving efforts over time.
• Streamlined Estate Planning: By contributing to a DAF, you can reduce your taxable estate and establish a lasting philanthropic legacy for your successors or heirs. 
• Liquidity Event Planning: Planning to sell your restaurant business or franchise location? You can use a DAF to offset the taxable income you incur from the sale, further slashing your tax bill.
• Next-Gen Involvement: You and your relatives can use DAFs to engage your children or future leaders in charitable decisions, reinforcing familial values of community and stewardship.

How to get started

The DAF startup process is straightforward, and you can accomplish it in a few simple steps:

• Select a sponsoring organization: Youroptions will likely include community foundations and major financial institutions.
• Decide what to contribute: As we explored above, you can make DAF contributions in cash, securities, or other assets.
• Create a giving strategy: At Aprio, our CPAs and business advisors work with restaurant and franchise owners to align their DAF contributions with their larger business, financial, and estate plans.

Are you interested in setting up a DAF to fuel your charitable giving efforts? Connect with our Restaurant, Franchise, and Hospitality team and find out whether your business could benefit from a DAF.