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.


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!
That’s not the end of inefficiencies for traditional donation practices: While donations are tax-deductible, how you donate impacts how tax-deductible they are. Itemized deductions are not one-to-one; rather, they sync to your tax rate. If you pay a 20% tax rate, an itemized deduction represents 20 cents for every dollar you earn. Donating $100 gets you only $20 in tax savings. There’s a more tax-efficient way: It’s called the donor-advised fund, or DAF.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
How a donor-advised fund works
A donor-advised fund is a vehicle you control that is earmarked for charitable giving. As the donor, you have control over both the amount and frequency of fund distributions from the DAF. Until donated, those funds can be invested and grown to increase the value of the DAF. Importantly, unlike regular charitable giving, donations to a DAF are eligible for a 100% tax deduction. If you transfer stock with a fair market value of $100 from your retirement account, you get a $100 deduction.
Plus, by donating that stock directly to the DAF, you avoid having to pay capital gains tax. Better yet, because the DAF is a charitable account, when it sells that stock, it, too, does not have to pay capital gains. This means donations of highly appreciated stock benefit both you and the charities the DAF donates to, since your initial investment in that stock led to a much larger donation that does not get eaten away by taxes.
A growing advantage
This advantage becomes more significant with every tax bracket; if your marginal tax rate is only 5%, that represents saving a nickel for every dollar of adjusted gross income, or AGI. However, if your marginal rate is 37%, you can realize a significant tax savings with this donation strategy.
A further advantage of a donor-advised fund is that, while DAF donations have an annual deduction cap of 30% of your AGI, the remainder can carry over. For example, if you make $100,000 this year and donate $40,000 to a DAF, you can deduct only $30,000 from your taxes this year. However, you can carry the difference and deduct the remaining $10,000 next year.
This boils down to a charitable giving tax strategy that can also have real benefits for you. If you have highly appreciated stock or are the recipient of a large windfall, you may be facing a considerable tax bill. Instead of taking that hit, it may be wise to consider how much you plan to donate over the next decade or so, then earmark those funds now in a donor-advised fund. You can significantly reduce your tax liability while still spreading those gifts out over the years to come.
As with most things in the personal finance realm, properly setting up and taking advantage of a donor-advised fund requires careful planning. It’s always a good idea to work with your financial adviser to determine the most efficient charitable giving strategy for you.
Related Content
- Six Charitable Giving Strategies: Feel Good and Cut Your Taxes
- How to Assess the Impact of Your Charitable Giving
- What to Do if Your Passion for Charitable Giving Has Flagged
- Did You Get a Cash Windfall? The Case for Doing Nothing
- One Way to Secure Your Child’s Inheritance in an Uncertain Tax Future
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

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.
-
Stock Market Today: Stocks Step Back From New Highs
Investors, traders and speculators continue the low-volume summer grind against now-familiar uncertainties.
-
Ask the Editor — Tax Questions on the New Senior Deduction
Ask the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on the new $6,000 deduction for taxpayers 65 and older.
-
Do You Need Flood Insurance? I'm an Insurance Expert, and Here's Where You Can Get It
Standard homeowners insurance does not cover flood damage, so you might need separate flood insurance, which you can get either through FEMA or private companies. Here are the details.
-
I'm an Investment Professional: These Are the Three Money Tips I'm Giving My College Grad
College grads can help set themselves up for financial independence by focusing on emergency savings, opting into a 401(k) at work (if it's offered) and disciplined, long-term investing.
-
New SALT Cap Deduction: Unlock Massive Tax Savings with Non-Grantor Trusts
The One Big Beautiful Bill Act's increase of the state and local tax (SALT) deduction cap creates an opportunity to use multiple non-grantor trusts to maximize deductions and enhance estate planning.
-
Know Your ABDs? A Beginner's Guide to Medicare Basics
Medicare is an alphabet soup — and the rules can be just as confusing as the terminology. Conquer the system with this beginner's guide to Parts A, B and D.
-
I'm an Investment Adviser: Why Playing Defense Can Win the Investing Game
Chasing large returns through gold and other alternative investments might be thrilling, but playing defensive 'small ball' with your investments can be a winning formula.
-
Five Big Beautiful Bill Changes and How Wealthy Retirees Can Benefit
Here's how wealthy retirees can plan for the changes in the new tax legislation, including what it means for tax rates, the SALT cap, charitable giving, estate taxes and other deductions and credits.
-
Portfolio Manager Busts Five Myths About International Investing
These common misconceptions lead many investors to overlook international markets, but embracing global diversification can enhance portfolio resilience and unlock long-term growth.
-
I'm a Financial Planner: Here Are Five Smart Moves for DIY Investors
You'll go further as a DIY investor with a solid game plan. Here are five tips to help you put together a strategy you can rely on over the years to come.