The Tax Advantages of Giving Through a Donor-Advised Fund (DAF)

Brit Neely
4 days ago
3 min read

Updated: 1 day ago

If you pay U.S. taxes and hold investments—especially those with significant capital gains—a Donor-Advised Fund (DAF) can be one of the most tax-efficient ways to give.

For many donors, a DAF doesn’t just simplify charitable giving—it meaningfully reduces tax liability while allowing greater flexibility in when and how funds are distributed.

Here’s how it works, and why it can be such a powerful tool.

What Is a Donor-Advised Fund?

A Donor-Advised Fund is a charitable giving account offered by most major financial institutions. You contribute assets to the fund, receive an immediate tax deduction, and then recommend grants from the fund to qualified nonprofits over time.

In short:

You give now
You deduct now
You grant later

Why DAFs Are Especially Powerful for Appreciated Assets

The biggest tax advantage of a DAF comes when you donate appreciated investments, such as stocks or shares that have grown in value.

Instead of selling those assets yourself—and paying capital gains tax—you donate them directly to your DAF.

The process looks like this:

Open a DAF
Most major investment institutions offer them.
Fund the DAF with appreciated assets
You donate shares or other assets directly into the DAF.
The assets are sold at market value, and the full fair-market value becomes tax-deductible under IRS guidelines (with some nuances for certain asset types, such as ESPPs).
Recommend grants to charities
You can grant funds to one or more qualified nonprofits—immediately or years later.
These grants are not tax-deductible because you already received the deduction when you funded the DAF.

A Real-World Example

Let’s say you own $10,000 worth of stock that you originally purchased for $2,000.

That means you have $8,000 in capital gains.

If you sell the stock yourself:

You owe capital gains tax on the $8,000 gain
Depending on your income, long-term capital gains could be taxed at 0%, 15%, 20%, or 23.8%
At the highest rate (23.8%), your gain is reduced to $6,096 after taxes

You can still donate cash afterward, but the capital gains tax has already been triggered.

If you donate through a DAF:

You donate the shares directly to the DAF
The DAF sells the assets
You owe no capital gains tax
You receive a full $10,000 charitable deduction

That difference matters.

Side-by-Side Comparison

Here’s how this plays out for someone with $100,000 in adjusted gross income (AGI) and $32,000 in deductions:

Scenario	No Donation	$10k Donation After Stock Sale	$10k DAF Donation
AGI	$100,000	$108,000	$100,000
Deductions	$32,000	$42,000	$42,000
Taxable Income	$68,000	$66,000	$58,000

Key takeaway:

Using a DAF can reduce taxable income far more effectively than selling assets and donating cash afterward.

Why DAFs Can Be Even More Beneficial with the Standard Deduction

If your itemized deductions are relatively low, you may already be taking the standard deduction.

In that case, the DAF advantage becomes even clearer.

Without a DAF:

Selling appreciated assets increases your taxable income
You may not fully offset that increase with charitable deductions

With a DAF:

You can make a large charitable contribution in one year, exceed the standard deduction threshold, and capture the full tax benefit
Then distribute those funds to charities over several future years—while returning to the standard deduction in subsequent tax years

This strategy is often called “bunching” charitable deductions, and DAFs make it straightforward.

Flexibility Over Time

Another key advantage: you don’t have to grant the funds immediately.

You can:

Fund your DAF in a high-income year
Receive the full tax deduction that year
Support charities gradually over time

This allows your generosity to align with both tax strategy and long-term giving goals.

Are There Downsides?

DAFs typically charge modest administrative fees.

A common structure is around 0.6% annually, though this varies by provider.

For most donors using appreciated assets, the tax savings far outweigh the fees, but it’s still worth understanding your specific provider’s terms.

Giving to Elephante Commons Through a DAF

If you use a Donor-Advised Fund and would like to support Elephante Commons, you can designate:

Elephante Commons, Inc.

EIN: 92-3058052

You can also verify our status through:

We’re happy to assist if your DAF administrator needs additional information.

A Final Note

This article is intended for educational purposes and does not replace personalized tax advice. We recommend consulting your tax professional to determine whether a DAF is the right fit for your situation.

That said, for many donors—especially those with appreciated assets—a Donor-Advised Fund is one of the most effective ways to give generously, strategically, and sustainably.