How a Donor-Advised Fund Can Support Your Generosity
Markets rose despite mixed economic signals. Stocks posted gains in Q2, with stocks climbing on the back of strong corporate earnings, resilient consumer spending, and ongoing enthusiasm around AI-related investments.
Authors
Allison Daines, Philip Wegman & Andy Avera
When it comes to generosity, many families we serve want their giving to be both meaningful and wise. A Donor-Advised Fund (DAF) can be a powerful tool to make that happen by helping you support the causes you care about while managing when and how you give.
What is a Donor-Advised Fund?
Think of a DAF as a charitable giving account. You can contribute cash or appreciated securities (like stocks, ETFs, or mutual funds) into it. Once you make a contribution, you receive a tax deduction right away, even if you decide to spread your gifts to charities over time.
It is especially helpful to gift appreciated securities. You avoid capital gains taxes on the growth and still receive a full charitable deduction for the value of the shares. The DAF can then convert those shares to cash so your giving stays simple and efficient.
You keep the flexibility to choose:
- When to give
- How much to give
- Which qualified charities (501(c)(3) organizations) to support
Your contributions are considered irrevocable gifts to the sponsoring organization such as DAFgiving360 (Schwab’s DAF). That makes the tax deduction possible (the funds now legally belong to the DAF) but you retain the ability to advise how they are invested and where the grants go.
Why It Matters: “Bunching” for Bigger Deductions
One of the biggest advantages of a Donor-Advised Fund is the way it can help you take advantage of “bunching” your charitable deductions. Bunching simply means combining two (or more) years of charitable donations into a single tax year so you itemize your deductions one year and then take the standard deduction the next year(s).
Before we look at the numbers, here’s a quick reminder of what goes into itemized deductions:
- State and local taxes (SALT) deductions:
- Up to $40,000 if income is $500,000 or lower
- Up to $10,000 is income is $600,000 or higher
- A SALT phaseout applies if income is between $500,000 and $600,000
- Charitable gifts
- Medical expenses above certain thresholds
- Mortgage interest
Imagine you give $50,000 to charity every year and you also have $20,000 in SALT deductions.
Your total itemized deductions are:
$20,000 SALT + $50,000 charitable = $70,000
The standard deduction for a married couple in 2025 is $31,500.
Even though you would itemize, you only receive additional tax benefit for the amount above the standard deduction:
$70,000 – $31,500 = $38,500 of actual tax benefit
This also means that $11,500 of your charitable gift is effectively absorbed by the standard deduction. This is because the standard deduction ($31,500) less the SALT deduction ($20,000) equates to $11,500 of charitable giving that must count towards “breaking even” with the standard deduction before itemizing becomes more advantageous.
How Bunching Helps
Now imagine you combine two years of giving and contribute $100,000 to your DAF in one year:
- $20,000 SALT
- $100,000 charitable
- Total itemized deductions = $120,000
Your additional tax benefit (above the standard deduction) becomes:
$120,000 – $31,500 = $88,500
Similar to the prior example, it’s still true that the first $11,500 of deductions is absorbed by the standard deduction. The benefit of bunching is what happens in the following year.
In year two, you continue giving from your DAF but you no longer have large deductions:
- $20,000 SALT
- $0 charitable giving
Your itemized total is $20,000, which is lower than the new (slightly increased) standard deduction of about $32,000.
So, in year 2, you would claim the full standard deduction, gaining $12,000 of extra deduction value in the off-year. This is value you would have missed had you spread your giving evenly.
2026 note: If you personally give additional cash directly to a qualified public charity in that off-year (outside the DAF), you may also deduct up to $2,000, even while taking the standard deduction. This does not apply to contributions to the DAF.
Bunching can create a simple two-year rhythm that lets you benefit from the standard deduction in the off-years while still giving consistently through your DAF.
How It Works Behind the Scenes
Once your assets are inside the DAF, they are typically sold and reinvested as you advise. You can recommend grants to your favorite charities at any time. You can invest the balance to potentially grow your charitable dollars. You can give in your own name, in your family’s name, in honor of someone else, or anonymously.
Most sponsoring organizations offer online portals where you can search for charities, track grants, and view balances.
What Happens to a DAF After You’re Gone?
Most DAF sponsors allow you to name successors (such as children or grandchildren) to continue your giving legacy. You can also direct any remaining funds to specific charities at your passing.
It is one more way to make generosity part of your family story.
A Timely Opportunity: The 2025 Giving Window
Under upcoming tax law changes, beginning in 2026 charitable deductions will only apply to the portion of giving that exceeds a new 0.5% AGI “floor.” In other words, 0.5% of your income becomes a minimum threshold: only donations above that amount can be deducted when itemizing.
For many families, 2025 offers a unique window to make larger gifts, especially through a DAF, before this rule takes effect.
The Bottom Line
A Donor-Advised Fund helps you:
- Simplify charitable giving
- Maximize tax benefits
- Support causes you care about on your timeline
- Involve your family in meaningful generosity
There are many ways to give through your time, talent, and treasure. A Donor-Advised Fund supports financial generosity by amplifying your gifts and lowering the tax hurdles that can get in the way. If you’d like to explore whether it is right for your family, we would be honored to help you consider it.
Bonus Content: If You Appreciate the Details, This Part Is for You
Additional Advanced Donor-Advised Fund Strategies
An Opportunity to Step Up Basis
Let’s say you own $120,000 of Microsoft stock that you bought years ago for $70,000. It’s grown by $50,000, which means if you sold it today, you’d owe taxes on that $50,000 gain.
Now imagine two things are true:
- You’d like to keep owning Microsoft stock.
- You plan to give $120,000 cash to charity this year.
Here’s where a Donor-Advised Fund (DAF) can make a big difference. Instead of giving cash, you could donate your Microsoft stock directly to your DAF. You would receive a $120,000 charitable deduction. Because you donated the appreciated shares, you avoid paying capital gains taxes on the $50,000 of growth.
Then, you can use the $120,000 of cash you were already planning to give to buy back into Microsoft at today’s price. The result is that you have “reset” or stepped up your cost basis to $120,000. If you ever sell that stock in the future, your taxable gain will be $50,000 lower and your giving has already made an impact.
An Opportunity to Harvest Losses During a Market Correction
Building on the example above, let’s say you love owning Microsoft but feel a little uncertain about where the market might head next. By stepping up your basis through a DAF, you’ve not only given strategically, you’ve also set yourself up to take advantage of future opportunities.
Here’s how that could play out. After donating your original $120,000 of Microsoft stock to your DAF and buying it back at today’s price, your new basis is $120,000. If the market dips and Microsoft’s value falls back to $70,000, your position now shows a $50,000 loss.
At that point, you could sell the stock, wait 31 days (to avoid the IRS “wash sale” rule), and then buy back into Microsoft if you choose. That realized loss of $50,000 can be used to offset future gains or reduce taxable income, giving you more flexibility and control over your tax picture.
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