Donor Advised Funds: A Vehicle for Generosity
Our advisors at the Christian Financial Advisors Network talk a lot about generosity and stewardship. We believe giving is vital in breaking the power that money has over us but also is a way to rejoice and give glory to God.
With that being said, there is one specific vehicle that stretches how much you’re able to give to the charities and causes you care about.
What is a Donor Advised Fund (DAF)?
Simply put, think of a donor-advised fund as a savings account for giving, where you contribute money, or investments, into the account and then later disburse it to the qualified charities of your choice. Your DAF does have to be maintained and operated by a non-profit 501(c)(3) organization called a sponsoring organization.
When you donate property to a donor advised fund it becomes the legal property of the organization and cannot be reclaimed. The benefit to the donor is that they receive a tax deduction for the year of donation as well as some other tax benefits (more on this later) .
The types of property that you can generally donate to a donor advised fund includes but isn’t limited to:
Publicly traded securities (stocks, bonds, etc.)
Mutual fund shares
Restricted Stock
Private equity and hedge fund interests
Privately held C-Corporation and S-Coporation shares
Cash and cash equivalents
Bitcoin and other digital assets/crypto currencies
Once the DAF is funded you can recommend grants, the donations, to any qualified 501(c)(3) charity of your choice. The sponsoring organization will then review your recommended grants and typically approve them. The chances of your grants being denied are very low.
Tax Benefits of Using a Donor-Advised Fund
When it comes to giving, worship and fostering a generous heart is the goal. While we don't give for tax purposes, it's nice when we can save on taxes while worshiping God through generosity. All things considered, there are significant tax benefits to using a DAF for your giving.
Tax Deduction
One of the immediate tax benefits is the tax deduction you receive upon donating property to the DAF.
Cash Donations
For cash donations (this includes Wire and ACH transfers), you can receive a tax deduction on the full amount up to 60% of your adjusted gross income (AGI)*.
So for example, if your AGI is $250,000 then you’d be able to deduct up to $150,000 of cash donations for that year.
Long-term Appreciated assets
For donating long-term appreciated assets, assets held for longer than one year, you can deduct the full fair market value (FMV) up to 30% of your AGI*.
So for example, let’s say you have some highly appreciated stock that you received from your company that is valued at $75,000. You would be able to fully deduct the donation of all of those shares ($250,000 x 30% = $75,000). However, if you wanted to donate stock valued at more than $75,000 you still would only be able to deduct $75,000 for the year. There is a carry forward provision for excess donations that I’ll talk about next.
Note: You can donate short-term appreciated assets, assets bought and held for less than one year, but your deduction will be limited to just the cost of the assets which results in a smaller tax deduction.
*Adjusted Gross Income (AGI) can be found on Line 11 of your US Tax return.
5 Year Carry Forward for Excess Donations
If you happen to make donations that exceed your AGI limit then any excess charitable contributions may be carried forward, as a deduction, up to 5 years in the future and applied to future tax returns.
So in the above example let’s say you donated $80,000 of appreciated stock instead of $75,000. Only $75,000 could be deducted for the year but you could carry forward the excess $5,000 as a deduction up to 5 years in the future.
Tax Free Growth & Sale
Another tax benefit for donating property to a DAF is the tax free growth on the property donated. Put another way, whatever growth the investments have within the DAF WILL NOT be taxed. This includes the capital appreciation, dividends, and interest.
Finally, whenever the appreciated assets are sold there are NO capital gains taxes due. This is extremely beneficial for assets that have substantial capital gains.
Giving Applications via a Donor-Advised Fund
The following giving applications, via a DAF, are by no means an exahaustive list.
Donating Highly Appreciated Stock
One of the most popular ways to fund a DAF is with highly appreciated stock that you’ve acquired. This can be company stock that you’ve received, or purchased, from your employer or just stock that you happen to have purchased at a low price.
Regardless, this is a prime candidate to donate to a DAF because if you sell the stock once it’s in the DAF then there won’t be any capital gains taxes. Remember this is the most important step: donate first and then sell. DO NOT sell first and then donate the cash after because you will owe capital gains taxes and inevitably net a smaller donation.
Let’s take a look at two separate scenarios using the following information:
Donating $75,000 in highly appreciated stock
The cost basis* is $25,000 for the stock
AGI is $250,000 which results in taxable income putting you in 15% long-term capital gains bracket
*Cost basis is the amount you paid for stock, the fair market value of the stock that was awarded to you (e.g. stock compensation), or the fair market value of the stock that you inherited whenever the benefactor passed.
Scenario 1: Donating & Then Selling
If you donate the stock first and then sell it once it’s in the DAF you will realize a $75,000 tax deduction and $0 in capital gains tax will be paid on the donation.
Scenario 2: Selling & Then Donating
Conversely, if you sell the stock first and then donate the proceeds you will pay approximately $7,500 in federal capital gains tax. Other taxes that may be owed, and subsequently reduce the total donation, are:
State capital gains tax (depending on your state)
Net investment income tax (depending on your MAGI*)
As you can see, at the bare minimum you’re only netting approximately a $67,500 donation due to the capital gains tax owed. Again, this isn’t including the potential additional taxes owed due to selling the stock outside of the DAF.
*Modified Adjusted Gross Income (MAGI) is your Adjusted Gross Income (AGI) with certain deductions added back in. You can read this article for more info on MAGI and the deductions added back in.
Donating Privately Held Business Interests
If you’re a business owner then donating all or part of your business is another popular way to use a DAF. Not all sponsoring organizations allow for the donation of privately held business interests so you’ll have to do your research or work with an advisor that can help identify the best sponsoring organization.
By donating highly appreciated shares of your business you can avoid capital gains taxes AND maximize your giving. The same deduction limits apply as long-term appreciated assets, the full FMV up to 30% of your AGI.
It’s important to know that this is one of the more complex types of donations to a DAF. Because of this much due diligence will need to be done by all parties involved. Also, the sponsoring organization will need to pre-approve the donation and will likely require a qualified appraisal of the business.
You can check out this article for more information on donating privately held business interests.
Donating Cash
If you don’t have any of the above property to donate and you’re not sure of any charities to donate to in the short-term then you could also donate cash to a DAF and let it grow.
This would give a deduction (on the full amount up to 60% of your AGI) for the current year, along with any potential carry forward, and allow for the money to be invested and grow tax-free until you’ve determined a specific charity to grant money to.
Final Notes
Be sure to work with a qualified tax professional and financial advisor when developing your giving plan and/or setting up your donor-advised fund. I’m pretty biased towards our financial advisors here at the Christian Financial Advisors Network.
To fully capitalize on giving property, it makes the most sense to itemize for that given year if you’re able to exceed the standard deduction amount (currently $15,000 for single filers and $30,000 for joint filers for 2025). To itemize it may make sense to pursue a bunching giving strategy where instead of giving the same amount each year you give two years worth of donations in a single year in order to gain a larger deduction, by itemizing, than the standard deduction.
However, with the passing of the One Big Beautiful Bill single filers claiming the standard deduction can deduct cash donations up to $1,000 per year without itemizing and joint filers can deduct cash donations up to $2,000 without itemizing. With that being said, the donations must go directly to the charity and you CANNOT use a DAF.
Generosity is the Goal
It’s important to remember that a donor advised fund is simply a tax-efficient vehicle that allows us to GIVE MORE to the causes that God has put on our hearts. The goal isn’t simply to reduce our tax burden but rather to increase in generosity.
When we give, we get the opportunity to participate in the joy WITH God.
“Each one must give as he has decided in his heart, not reluctantly or under compulsion, for God loves a cheerful giver.”
2 Corinthians 9:7
If you need guidance in setting up a donor-advised fund or would like help in crafting your giving strategy please don’t hesitate to reach out to one of our advisors here at the Christian Financial Advisors Network.
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