If you give to charity regularly, a donor-advised fund (DAF) can make your giving simpler and more tax-efficient. It is one of the tools I use most often with charitably minded clients, especially now that fewer people itemize their deductions.
What is a donor-advised fund?
A donor-advised fund is an account held at a sponsoring public charity. You make an irrevocable gift to the fund and can take a charitable deduction in the year you contribute. You then recommend grants from the fund to the charities you choose, on your own schedule, whether that’s next month or over many years. The money can be invested while it waits to be granted, and you can name a successor to continue directing grants after you pass away.
How the deduction works
Because a DAF sponsor is a public charity, your contribution is treated like a gift directly to a public charity. You can generally deduct the fair market value of the gift, subject to income limits:
- Cash gifts are deductible up to 60% of your adjusted gross income (AGI). This limit is now permanent.
- Gifts of appreciated stock or other property held more than a year are generally deductible up to 30% of AGI.
- Any amount you can’t deduct because of these limits can be carried forward for up to five years.
Starting in 2026, a few new rules also apply. If you itemize, only the portion of your total charitable gifts above 0.5% of your AGI is deductible. If you are in the 37% tax bracket, the value of the deduction is capped at 35%. And while non-itemizers can now deduct up to $1,000 of cash gifts to charity ($2,000 for married couples filing jointly), gifts to donor-advised funds do not qualify for that deduction.
Give appreciated stock instead of cash
Many investors hold stocks or funds that have grown significantly in value. If you donate those shares directly to a DAF, the fund can sell them without paying capital gains tax, and you can deduct the full market value. It can also be an effective way to reduce a large, concentrated position in your portfolio.
Here is an example. Say you bought stock for $2,000 that is now worth $10,000, and you plan to give $10,000 to charity. If you contribute the stock to a DAF, you may be able to deduct the full $10,000 (subject to the income limits) and you never pay capital gains tax on the $8,000 gain. If you had sold the stock first and donated the cash, you would have owed tax on that gain.
Bunching your gifts
With the 2026 standard deduction at $32,200 for married couples filing jointly, many families no longer have enough deductions to itemize each year. A DAF lets you “bunch” several years of giving into one tax year. You itemize in the year you fund the DAF, take the standard deduction in the years in between, and still send grants to your favorite charities every year. See my year-end planning checklist for how this fits with other year-end moves.
Things to keep in mind
- Contributions are irrevocable. Once the money is in the fund, it must eventually go to charity.
- DAFs can have account minimums, administrative and investment fees, and rules on which grants are allowed.
- If you are 70½ or older, a qualified charitable distribution directly from your IRA may be more tax-efficient than a DAF gift. QCDs cannot be made to a donor-advised fund.
- Tax laws can change, which could affect the benefits of donor-advised funds in the future.
Before making a large gift, talk with your accountant and financial advisor about how a donor-advised fund fits your tax picture and your charitable goals.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
