Watch/Listen: How Philanthropy Rewires a Life (Podcast, Ep. 26)

The Tax-Smart Way to Give Back

How Donor-Advised Funds help high earners reduce taxes today and fund meaningful causes for years to come.

Giving is about purpose, and structure. A donor-advised fund (DAF) can turn a generous impulse into a durable plan that supports the causes you believe in and aligns with your broader wealth strategy.

Why Donor-Advised Funds Work for High Earners

• Immediate deduction: contribute now, potentially deduct this year (subject to AGI rules), and recommend grants later.
• Capital-gains relief: donate long-term appreciated assets and you may avoid the gains you’d owe if you sold first.
• Timing control: front-load giving in high-tax years; distribute grants over time with intention.
• Operational ease & privacy: one receipt, simplified admin, and optional anonymity on grants.

How a DAF Supercharges Peak-Income Giving

DAFs shine during years with large bonuses, RSU vests, business sales, or other liquidity. You can contribute in the high-income year to potentially offset taxes, then pace grants as opportunities arise.

What You Can Contribute

• Cash: generally deductible up to 60% of AGI for gifts to public charities/DAF sponsors (per current rules).
• Long-term appreciated assets: generally up to 30% of AGI with a five-year carryforward for any excess; potential to deduct fair market value and avoid capital gains.
• Complex assets: some sponsors can accept private stock, pre-liquidity shares, or real estate, subject to review and eligibility.

A Real-World Example

Scenario: You face a major liquidity event this year (AGI $1.5M). You donate $500,000 of long-term appreciated stock with a $100,000 basis into a DAF before the transaction closes.

• Capital gains avoided: $400,000 × 23.8% ≈ $95,200.
• Deduction this year: 30% of $1.5M = $450,000.
• Carryforward: $50,000 for up to five additional tax years.
• Tax value (illustrative): at a 37% marginal rate, deductions could be worth ≈ $185,000 over time.

Result: you potentially reduce tax in a high bracket year and create a multi-year giving pool you can deploy thoughtfully.

Beyond DAFs: Other Philanthropic Paths

• Private foundations: maximum control and visibility, but lower AGI limits and higher admin/reporting; best for large, enduring initiatives.
• Charitable remainder trusts (CRT): convert a concentrated asset into an income stream while deferring gains; remainder goes to charity.
• Qualified charitable distributions (QCDs): for those age 70½+, give directly from IRAs (limits apply) to reduce AGI and satisfy RMDs. Note: QCDs cannot fund DAFs.

Why 2025 May Be a Unique Window

Under current law, changes beginning in 2026 may add new charitable deduction constraints. If you intend to front-load giving, consider establishing or adding to a DAF this year so deductions align with peak earnings and current deduction rules (subject to eligibility and sponsor acceptance).

Key Takeaways

• Structure matters: a DAF can pair purpose with tax efficiency.
• Asset choice matters: appreciated assets may boost impact by avoiding gains.
• Timing matters: contribute in high-income years; grant over time.
• Alternatives exist: foundations, CRTs, and QCDs each solve different problems.

FAQs

Can I remain anonymous when I grant from a DAF?

Yes. Most sponsors allow anonymous grants, useful if you prefer privacy or want to avoid future solicitations.

Which assets are best to donate?

Long-term appreciated securities often deliver the strongest combo of potential deduction and capital-gains avoidance. Complex assets may be eligible with additional review.

How fast can I make grants after contributing?

Often immediately after the contribution settles and the sponsoring charity has accepted the asset. You retain advisory privileges to recommend grants over time.

How do DAFs compare to private foundations?

DAFs are simpler, typically with higher AGI limits and lower overhead; foundations provide more control/governance but add admin, reporting, and lower deduction limits.

Can I use IRA QCDs to a DAF?

No. QCDs must go directly to qualified charities, not to donor-advised funds.