A Donor-Advised Fund Can Give Your Charitable Giving a Boost

Save on taxes and donate more to your favorite charities by using a donor-advised fund, or DAF. Here’s how to maximize your giving with this strategic approach.

A woman puts a coin into a piggy bank.
(Image credit: Getty Images)

Charitable giving is something most people think about around the holidays, but a year-round approach to strategizing your donations can lead to more impactful results. Donating money the “usual” way — writing a check — is often an inefficient way to give that results in greater costs to you and less benefit to the organization you’re trying to help.

A common practice when bequeathing a large donation to a charity is to sell assets such as appreciated stock to raise the cash, then deliver the cash to the charity. Tax planners cringe at this method: Selling that stock results in capital gains taxes, which you must pay before giving money to the charity. If you wish to donate $1,000, you must sell more than $1,000 in stock to cover the tax bill. That can generate income and capital gains taxes which, depending on your income, can be substantial. It would be considerably more efficient to donate to the charity without having to pay up to 40% of your donation in taxes!

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Samuel V. Gaeta, CFP®
Principal, Director of Financial Planning, Defined Financial Planning

As Principal and Director of Financial Planning, Sam Gaeta helps clients identify financial goals and make plan recommendations using the five domains of financial planning — Cash Flow, Investments, Insurance, Taxes and Estate Planning. He is responsible for prioritizing clients' financial objectives and effectively implementing their investment plans and actively monitors the ever-changing nature of clients' financial and investment plans.