Donor-Advised Fund (DAF)
A charitable account that lets you take a deduction now and grant later.
A donor-advised fund lets you contribute assets, take an immediate deduction, and distribute grants to charities over time.
How It Works
- Contribute cash, stock, or other assets to a DAF (Fidelity Charitable, Schwab Charitable, etc.).
- Deduct the full contribution in the year you contribute.
- Invest the funds inside the DAF (they can grow tax-free).
- Grant to qualified charities whenever you choose—no deadline.
Example
You plan to give $5,000/year to charity over the next 5 years. Instead:
- Contribute $25,000 to a DAF in Year 1.
- Take a $25,000 deduction in Year 1 (may push you over the standard deduction threshold).
- Grant $5,000/year to your chosen charities from the DAF.
Why Use a DAF
- Charitable bunching: Concentrate deductions into high-income years to exceed the standard deduction threshold.
- Appreciated stock: Donate stock, avoid capital gains tax, get full deduction.
- Simplicity: One receipt, one account, distribute grants anytime.
- Qualified Charitable Distributions (QCDs): If you are 70½+, you can fund charitable goals directly from an IRA — a complementary approach to DAFs.
See the full strategy: Charitable bunching with a DAF
DAF vs Direct Giving
A DAF makes the most sense when you want to separate the timing of the tax deduction from the timing of your grants. If you itemize deductions some years but take the standard deduction in others, bunching two or three years of giving into a single DAF contribution can maximize the tax benefit. Our standard vs itemized decision guide can help you decide which approach works for your situation.
Related reading:
- Charitable giving strategies — broader overview of tax-smart giving
- Itemized deductions overview
- Tax-loss harvesting basics
- Effective tax rate guide
- Tax planning on a budget — DAFs are one of several free-to-implement strategies
- Tax strategy checklist for high earners — where DAFs fit in a broader plan
How sharper.tax Helps
sharper.tax analyzes your charitable giving and compares it against the standard deduction threshold to determine whether a donor-advised fund and charitable bunching strategy could save you money. We show the estimated benefit in real dollars. Sophisticated tax planning used to require a high-end CPA — we make it available for free.
Sources
- IRS Publication 526 (Charitable Contributions)
- IRS Publication 561 (Determining the Value of Donated Property)
The information above is educational and not tax advice.