Donor Advised Fund (DAF)
Also: DAF, donor advised fund, donor-advised fund
A charitable giving vehicle sponsored by a public charity that accepts irrevocable donations, provides an immediate tax deduction, and allows the donor to advise distributions to operating charities over time.
A Donor Advised Fund is an account at a public charity, such as Fidelity Charitable, Schwab Charitable, or Vanguard Charitable, that accepts cash, appreciated securities, or other complex assets. The donor receives a charitable income tax deduction in the year of contribution equal to the FMV of the asset (up to 30% of AGI for appreciated securities). Funds invested inside the DAF grow tax-free. The donor advises grants to operating charities on any future timeline. The sponsor owns the assets legally, but in practice honors donor recommendations.
Example: an engineer donates 5,000 shares of employer stock with a $4 basis and $180 current price to a DAF. She takes a $900,000 charitable deduction (FMV at contribution) and avoids $176,000 of federal long-term capital gains plus NIIT she would have owed on a sale. The DAF sells the shares tax-free and she recommends $50,000 annual grants across 18 years of giving.
Common mistake: donating cash instead of appreciated stock. Cash donations produce the same deduction but forfeit the capital gains tax avoidance.
DAFs matter at every IPO year, at RSU-heavy years where deduction bunching beats the standard deduction, and at long-run charitable intent without the administrative cost of a private foundation.