Donor-Advised Fund (DAF)
A charitable giving vehicle held by a public charity sponsor that lets a donor make a tax-deductible contribution today and recommend grants to qualifying charities over time.
Detailed Explanation
DAFs combine the immediate-deduction benefit of a lump-sum charitable gift with the flexibility of granting to charities later. Contributions of appreciated long-term stock or other assets are deductible at fair market value (subject to AGI limits) and avoid capital gains tax on the appreciation. Sponsors include Fidelity Charitable, Schwab Charitable, Vanguard Charitable, and most large community foundations. Once contributed, the assets are irrevocably charitable and cannot be returned to the donor.
Key Points
- Deduct the full contribution in the year of the gift, then recommend grants to charities over time.
- Donating appreciated long-term securities gives a fair-market-value deduction AND avoids capital gains tax.
- AGI limits apply: generally 60% of AGI for cash and 30% for appreciated securities, with 5-year carryover.
- Contributions are irrevocable, the assets are charitable and cannot return to the donor.
- A common engine for charitable bunching strategies.
Practical Example
An investor holds stock bought for $20,000 now worth $100,000. Donating it to a DAF, she deducts the $100,000 fair market value (subject to the 30% AGI limit) and avoids the roughly $19,000 of capital gains tax she would owe if she sold first. The DAF then grants to her chosen charities over the next several years.
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Learn about Tax Planning & StrategyRelated Terms
Charitable Bunching
A strategy of concentrating multiple years of charitable contributions into a single tax year to exceed the standard deduction threshold and itemize, then taking the standard deduction in alternating years.
Qualified Charitable Distribution (QCD)
A direct transfer from an IRA to a qualified charity by a taxpayer age 70 and a half or older, satisfying the RMD without inclusion in taxable income.
Itemized Deductions
Specific deductions claimed on Schedule A in lieu of the standard deduction, including state and local tax, mortgage interest, charitable contributions, and medical expenses.
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