Donor-advised funds

A donor-advised fund (DAF) is an account dedicated to charitable giving. You contribute money (or appreciated assets), take the tax deduction in the year of the contribution, then recommend grants to charities over time. It's the most flexible charitable giving vehicle short of your own foundation, and it's available to anyone with a few thousand dollars to open one.

Why they matter

Two main reasons: (1) bunching deductions, and (2) donating appreciated assets without paying capital gains.

1. Bunching

The standard deduction is high (~$30k married filing jointly). To itemize and actually deduct charitable gifts, you need to exceed it. Most years, people don't. With a DAF, you can contribute 3–5 years of planned giving in a single high-income year, itemize that year, then take the standard in off years. The IRS is fine with this.

2. Appreciated assets

If you donate appreciated stock or fund shares directly to a DAF, you deduct the full market value AND avoid paying capital gains tax on the appreciation. That's a double tax benefit that cash donations don't provide. If you have long-held index funds with big embedded gains, giving them instead of cash is a meaningful optimization.

The catch

Once money goes into a DAF, it's irrevocably charitable — you can't take it back. You can only recommend grants to qualified 501(c)(3) organizations. Small fees (0.6%/year or so) apply. And you don't get additional deductions when you grant from the DAF to a charity — the deduction happened the year you contributed.