Deduct Now, Donate Later: Donor-Advised Funds Offer Significant Benefits

If you are planning to make significant charitable donations, consider a donor-advised fund (DAF). DAFs offer many of the tax and estate planning benefits of private foundations, at a fraction of the cost. (See "DAFs vs. private foundations.") Most important, they allow you to take a significant charitable income tax deduction now, while deferring decisions about how much to give — and to whom — until the time is right.

What is a DAF?

A DAF is a tax-advantaged investment account administered by a not-for-profit "sponsoring organization," such as a community foundation or the charitable arm of a financial services firm. Contributions are treated as gifts to a Section 501(c)(3) public charity, which are deductible up to 50% of adjusted gross income (AGI) for cash contributions and up to 30% of AGI for contributions of appreciated property (such as stock). Like other gifts to public charities, unused deductions may be carried forward for up to five years.