A donor-advised fund (DAF) is a charitable investment account, recognized as an IRS-qualified 501(c)(3), that allows donors to make contributions via cash, securities, i.e., mutual funds, stocks, etc., or other assets. The donor receives an immediate tax deduction while having the flexibility to recommend grants to the charities they care about over time.
Other benefits of utilizing a DAF include:
1. Tax Efficiency-Not only are contributions to a DAF immediately tax-deductible but if the donor contributes highly appreciated securities, they would avoid paying capital gains and can take an income tax deduction in the amount of the full fair market value of the security. DAFs can also be beneficial to individuals who may have a substantial income in a given year, such as a business sale, for example.
For cash contributions, an individual is eligible for an income tax deduction up to 60% of their adjusted gross income (AGI), and forcontributions made via securities, such as stocks and bonds, the income tax deduction can be made up to 30% of AGI
2. Investment Growth: Funds contributed can be invested according to the gifting strategy of the individual and grow tax-free until the funds are distributed to charities.
3. Privacy: DAFs can provide anonymity for donors who would prefer to keep their giving private.
4. Simplified Administration: The DAF handles all recordkeeping, compliance, and distributions, simplifying the charitable giving process.
The DAF can streamline the charitable giving process for those who are already philanthropically inclined.