By Jessica I. Marschall, CPA — July 3, 2025
What is a Donor-Advised Fund (DAF)?
At MAS LLC, we have observed a noticeable increase in the establishment of Donor-Advised Funds (DAFs) among our clients. This trend is echoed across our affiliated organizations, The Green Mission Inc. and Probity Appraisal Group, where charitable planning and non-cash asset appraisals are central to many of the services we provide. Our clients are increasingly aligning their charitable giving goals with strategic tax planning, pairing a genuine desire to “do good” with meaningful income tax deductions. For individuals who recognize that wealth cannot accompany them beyond this life, or who wish to minimize the burden of estate taxes should their assets exceed the federal threshold, DAFs offer a thoughtful and tax-efficient solution.
In today’s climate of federal spending cuts and increasing demand on public services, charitable giving has taken on greater significance. By setting up a DAF, donors are able to put their values into action, supporting causes they care about while also realizing immediate and long-term tax benefits. This article explains how DAFs function from a technical tax perspective and why they are becoming an essential tool in both philanthropic and financial planning.
A donor-advised fund is a charitable giving vehicle housed within a sponsoring public charity. Although the donor transfers legal ownership of donated assets to the fund, the donor retains advisory privileges to recommend grant distributions to IRS-qualified charities over time (harness.co).
Technical Operation from a Tax Perspective
- Immediate Tax Deduction
- Cash gifts: Deductible up to 60% of adjusted gross income (AGI).
- Appreciated long-term assets (e.g., stock held more than one year): Deductible up to 30% of AGI at fair market value (FMV) (harness.co).
- Avoidance of Capital Gains Tax
- Donating appreciated assets allows the fund—not the donor—to sell them without triggering capital gains tax. The donor benefits by deducting the full FMV while bypassing what would have been taxable gains (seic.com).
- Tax-Free Investment Growth
- Once inside the fund, assets can be invested (e.g., in mutual funds). Any growth is not subject to federal income tax while it remains in the DAF (wealthspire.com, convoyofhope.org).
- Flexibility of Grant Timing
- The donor receives the tax deduction in the year of contribution but may advise on charitable distributions in future years. Meanwhile, the sponsoring charity handles distribution, compliance, and reporting (rsmus.com).
- Estate-Tax Benefits
- Assets contributed to a DAF are removed from the donor’s taxable estate. Any post-contribution appreciation also escapes estate taxation (harness.co, rsmus.com).
Example: Stock Donation to a DAF
Consider an individual who owns XYZ stock acquired long ago:
- Cost basis: $5,000
- Fair market value: $15,000
- Unrealized gain: $10,000
If the individual sells the stock:
- A capital gains tax of approximately $2,000 would be triggered (assuming a 20% rate), netting $13,000 after tax.
- The charitable deduction would be limited to $13,000.
If the individual donates the stock directly to a DAF:
- No capital gains tax is due.
- A $15,000 charitable deduction is available.
- The DAF sells the stock; the proceeds are reinvested tax-free.
Summary of benefits:
| Scenario | Donation Value | Capital Gains Tax | Charitable Deduction | Net to Charity | Additional Benefit |
| Sell and donate cash | $13,000 | $2,000 | $13,000 | $13,000 | — |
| Donate stock to DAF | $15,000 | $0 | $15,000 | $15,000 | $2,000 |
The donor increases the charitable impact by $2,000 while maximizing the deduction.
Strategic Tax Planning Uses
- Bunching contributions: Combine multiple years of giving into one large DAF donation to exceed the standard deduction threshold in high-income years, then distribute grants in later years (harness.co).
- Donation of complex assets: Many DAFs accept real estate, private business interests, cryptocurrency, or artwork, enabling full FMV deductions and avoiding capital gains (morganstanley.com).
- DAF versus private foundations: DAFs offer higher deduction limits, fewer administrative burdens, and no required annual distributions (harness.co).
Important Considerations
- Irrevocability: Contributions to a DAF are permanent and cannot be reclaimed (convoyofhope.org).
- No mandatory payout: There is no legal requirement to disburse funds annually, unlike private foundations (harness.co).
- Sponsoring organization control: Legally, the sponsoring charity retains discretion over disbursements, although donor recommendations are generally followed (kiplinger.com).
- Fee structures: Most DAFs assess investment and administrative fees that may impact long-term growth (convoyofhope.org).
- Transparency and timing: Concerns exist regarding delays in grantmaking and limited public insight into the identity of donors or the timing of distributions (apnews.com).
Case Study: Dr. Lee
In 2025, Dr. Lee realizes a large capital gain after the sale of a private practice. To offset income, she contributes $100,000 of appreciated stock to a DAF:
- She deducts the full $100,000 in 2025.
- She avoids $20,000 in capital gains tax.
- The funds are invested within the DAF.
- She directs $30,000 in grants annually over the next three years.
- Remaining funds grow tax-free, expanding her charitable reach.
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