A donor-advised fund is a charitable giving account held at a sponsoring organization - Fidelity Charitable, Schwab Charitable, Vanguard Charitable, or a community foundation - where donors receive an immediate tax deduction when they contribute assets, and then recommend grants to qualified charities over time. The deduction is taken in the year of contribution, regardless of when the grants are actually made. Inside the DAF, assets grow tax-free. The DAF is the most flexible, lowest-cost charitable vehicle available to individual donors - and it is the primary tool for the charitable giving bunching strategy that allows taxpayers to itemize in one year and take the standard deduction the next.
Contribution to the DAF: Charitable deduction in the year of contribution. Limits: 60% of AGI for cash; 30% of AGI for appreciated capital gain property (stock, real estate); 50% of AGI for other property. Excess contributions carry forward up to 5 years.
Growth inside the DAF: Tax-free. The DAF is a public charity (§501(c)(3)) and pays no income tax on investment gains, dividends, or interest earned on the contributed assets. The donor has no taxable event from DAF investment growth.
Grants from the DAF: No additional deduction when the DAF distributes (grants) money to a charity. The deduction was taken at contribution. The donor "recommends" grants - the sponsoring organization technically controls the assets but in practice follows donor recommendations for qualified charities.
Minimum grant requirements: Most DAF sponsors require at least one grant every year or every few years, or impose a de minimis grant policy. Assets cannot sit indefinitely without being granted out.
Contributing appreciated stock (or other long-term capital gain property) to a DAF is one of the most tax-efficient charitable strategies available. When you contribute appreciated stock to a DAF: you receive a deduction equal to the full fair market value of the stock (up to 30% of AGI), and you pay no capital gains tax on the appreciation. The DAF sells the stock inside the fund tax-free and reinvests or grants the proceeds.
The standard deduction ($30,000 MFJ for 2026) means many moderate charitable givers receive no tax benefit from their contributions - their itemized deductions do not exceed the standard deduction. The DAF bunching strategy: instead of giving $10,000/year for 3 years (total $30,000), contribute $30,000 to the DAF in year 1. Take the full $30,000 deduction in year 1 (likely pushing itemized deductions above the standard deduction). Then grant $10,000/year from the DAF to charities in years 1, 2, and 3. Take the standard deduction in years 2 and 3. Net result: the same $30,000 goes to charity, but you get the tax benefit of itemizing in year 1 instead of zero benefit over three years.
A private foundation and a DAF both allow donors to contribute assets, receive a deduction, and then distribute to charities over time. The DAF wins on simplicity and cost: no setup costs, no annual Form 990-PF filing, no minimum distribution requirement, no excise tax on investment income, no self-dealing rules. The private foundation wins on control: the donor can hire family members, make grants to individuals (with IRS approval), and maintain complete control over investment and grantmaking decisions. For most individual donors with giving programs under $10-20 million, a DAF is clearly superior.