Why are DAFs useful?
DAFs provide tremendous flexibility for people looking to make charitable contributions. A contribution into a DAF is immediately tax-deductible, but the funds do not have to be distributed to recipient charities right away. This provides an individual the ability to maximize their tax reduction strategies, while also providing time and space to formulate an effective approach to philanthropy.
Additionally, DAFs make it much easier for donors to donate non-cash assets such as stock (both privately held and public securities), property, art, jewelry, and other valuables that many charities are incapable of accepting as gifts. By donating these assets to a DAF and then liquidating them, donors maximize the full value of the asset since they do not have to pay capital gains taxes on the appreciated amount.
Finally, much like a retirement account, funds held within a Donor-Advised Fund account can be invested in appreciable assets such as stocks and bonds. These investments grow tax free, meaning that when a donor advisor ultimately decides to disburse to charity they may have more funds to donate.
You can contribute appreciated assets to Donor-Advised Funds to dramatically reduce or eliminate capital gains taxes. One of the most creative ways to fund a DAF is through a direct donation of publicly traded shares or other liquid donations. This is a particularly tax-efficient option because shares held for more than a year can be transferred at their fair market value without incurring capital gains tax. Donor-Advised Fund holders enjoy a federal income tax deduction of up to 50% of adjusted gross income for cash contributions, and up to 30% of adjusted gross income for the appreciated securities they donate.