Funding a Donor-Advised Fund (DAF) with appreciated securities offers significant tax advantages.
- Avoid Capital Gains Tax: When you donate appreciated stock directly to a DAF, you typically avoid paying capital gains tax that would be due if you sold the stock yourself. This can eliminate up to 20% or more in taxes on the appreciated value, depending on your income level.
- Receive a Full Fair-Market-Value Deduction: You can generally deduct the full fair-market value of the stock at the time of the donation (if held for over a year), up to 30% of your adjusted gross income (AGI) in the year of the donation.
- Bunching Deductions: If you have a high-income year and wish to maximize itemized decuctions, you can make one large deposit into your DAF, representing the combined amount of years of anticipated future charitable giving. This “bunching” can allow a substantial deduction in the year you fund the DAF, while still allowing grants to be distributed to eligible organizations over time, on a schedule you determine.
These advantages make DAFs a powerful tool for turning highly appreciated assets into impactful, tax-efficient charitable giving, while you maintain control over the timing of its disgtribution.
The content here is provided as a guide to help laypeople understand some of the fundamentals of tax-efficient giving based on current laws and regulations which may change without notice. Content here should never be considered or counted on as professional advice. Always seek qualified advice from legal, tax, and accounting professionals for your own personal situation.