Donor-Advised Fund (DAF)

Can you take the tax deduction for a gift this year but decide where it goes later? Yes, and that’s the whole point of a donor-advised fund. A DAF is a charitable account you contribute to now, claim the deduction now, and then recommend grants from to your chosen charities on your own schedule, this year or a decade from now.

How it works

You open a DAF at a sponsor, fund it with cash or, better, appreciated assets, and take the charitable deduction in the year you contribute. The money is irrevocably committed to charity, so you can’t get it back. But you decide when and to whom it gets granted. The balance can be invested and grow tax-free while it waits.

A quick example

Say you sell a business or hit a huge bonus year and your income spikes. You drop $200,000 of appreciated stock into a DAF. You skip the capital gains tax on that stock, you take a deduction against your high-income year, and you spend the next ten years granting it out to the causes you care about. The deduction lands when it’s worth the most, the giving happens when you’re ready.

The part most people miss

The real power is “bunching.” With a large standard deduction, many retirees never itemize, so their charitable gifts get no tax benefit at all. Fund several years of giving into a DAF in one year and you clear the itemizing hurdle that year, then take the standard deduction in the off years. You give the same total, but you actually get paid for it. Funding it with appreciated stock instead of cash doubles the win by erasing the embedded gain.

DAF versus QCD

A DAF and a QCD solve different problems. A QCD sends IRA money straight to charity and keeps it off your return, which is ideal once you’re taking RMDs. A DAF takes appreciated stock, gives you an upfront deduction, and lets you delay the actual grants. Many affluent households use both, often in the same year. The full bunching playbook is in the Donor-Advised Fund Deep Dive.

A DAF separates the tax decision from the giving decision. Take the deduction when it’s valuable, give the money when you’re ready, and let the IRS subsidize your generosity.