The Charitable Checking Account: Donor Advised Funds (DAF)
The Charitable Checking Account: Donor Advised Funds (DAF)
Stop donating cash. How to use a DAF to get an immediate tax break for gifts you won’t distribute for years, and why “Bunching” is the only way to beat the Standard Deduction.
Executive Summary
- The “Holding Tank” Concept: A DAF is like a charitable investment account. You contribute assets to it today and get an immediate tax deduction. However, you don’t have to send the money to a specific charity (church, school) immediately. It can grow tax-free in the account until you decide.
- The “Double Dip” (Stock Donation): Never donate cash. If you donate $10k of Apple stock (bought for $1k), you avoid the $1,800 capital gains tax AND you get a $10,000 income tax deduction. You save taxes twice on the same dollar.
- The “Bunching” Hack: The Standard Deduction is high (~$29k for couples). If you give $10k/year, you get zero tax benefit (because $10k < $29k). Instead, put 5 years of gifts ($50k) into a DAF in Year 1. You maximize the deduction this year, then distribute $10k/year from the DAF over the next 5 years.
Anonymous Giving
Privacy Feature: When you donate directly to a charity, you get on their mailing list forever. When you donate via a DAF (like Fidelity Charitable), the check comes from “Fidelity,” not you. You can choose to remain completely anonymous to the recipient.
Mechanic: The “Bunching” Strategy
Immediate Ded
Current Tax Year
No Cap Gains
Appreciated Assets
Grow Tax-Free
Invested in Market
Irrevocable
Cannot Take Back
Simulation: Annual Giving vs. Bunching ($10k/yr Gift, Married Filing Jointly)
Total Tax Deductions over 5 Years
| Feature | Private Foundation | Donor Advised Fund (DAF) |
|---|---|---|
| Setup Cost & Time | High ($10k+ / Months) | Zero / Instant (Online) |
| Privacy | Public (Tax Returns are public) | Private (Donor name hidden) |
| Deduction Limit (Cash) | 30% of AGI | 60% of AGI |
“A DAF separates the ‘tax decision’ from the ‘charitable decision.’ You make the deposit when you need the tax break (e.g., high income year), and you make the grant when the charity needs the money.”
Essential Resources
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