Finance column: Donor-advised funds, a smart way to give
Edward Jones Financial Advisor Natali Sanchez.
– While there are many ways to make charitable gifts, a donor-advised fund (DAF) offers multiple tax benefits and an efficient platform for ongoing giving.
Once you open a DAF, you can contribute many types of assets, including cash, publicly traded stocks, bonds, CDs, or non-cash items such as closely held business interests, art, or collectibles. Then decide how to invest the money, potentially following a strategy your DAF sponsor suggests. Next, choose which charities to support, how often to give, and how much. You can direct the money to any IRS-approved charitable organization.
Tax deductions
The standard deduction was raised in 2025 and has now been indefinitely extended.
Taking the standard deduction: A new provision in 2026 lets you deduct up to $1,000 in charitable cash contributions ($2,000 if filing jointly) made directly to qualified charitable organizations. However, contributions to DAFs are specifically excluded. You can still receive other DAF advantages, including tax-free growth and capital gains avoidance, just not a deduction for the DAF contribution itself.
Itemizing deductions: A new 2026 rule limits what’s deductible: only aggregate charitable contributions exceeding 0.5% of your adjusted gross income (AGI) are deductible. If you don’t give enough in a single year to clear that floor, a DAF’s “bunching” strategy may be effective. You combine several years of giving into one DAF contribution and distribute funds at your own pace, making the 0.5% AGI floor easier to clear.
In the 37% federal marginal tax bracket: Your itemized deduction tax benefit is now capped at 35%, applied after any other deduction-specific limits such as the 0.5% AGI floor. Factor this into your charitable giving strategy with your tax professional.
Tax-free growth of earnings
Once you contribute an asset to a DAF, any earnings growth is not taxable to you, the DAF or recipient charities. This means charitable assets can grow, potentially increasing what recipient organizations receive.
Avoidance of capital gains taxes
When you donate appreciated stocks or other investments — or virtually any appreciated asset — to a DAF, you can avoid the capital gains taxes that would be due if you sold the asset and donated the proceeds. Charities benefit because they receive the full appreciated value rather than after-tax sale proceeds. And you can still take a tax deduction for your donation.
Tradeoffs to consider
While these tax benefits can make a DAF attractive, it’s worth understanding the tradeoffs. Once you contribute assets to a DAF, that gift is irrevocable. Your investment options are also limited to what’s available in the DAF program you’ve chosen, and DAFs can incur administrative costs in addition to fees charged on the underlying investments.
A good next step
Because DAFs can have significant implications for your tax situation, consult with your tax professional before taking action. Your financial advisor can also help you evaluate DAF benefits and tradeoffs and compare sponsors, since programs offer different features.
If a DAF is appropriate, it can be a meaningful and efficient way to support charitable giving for years to come.
Natali Sanchez, CPWA, ChFC, CRPC
Financial Advisor
Edward Jones, Member SIPC
7305 Morro Rd., Suite 202, Atascadero, CA 93422
(805) 461-3453
natali.sanchez@edwardjones.com
edwardjones.com/us-en/financial-advisor/natali-sanchez
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor. Edward Jones, Member SIPC
Edward Jones, its employees, and financial advisors are not estate planners and cannot provide tax or legal advice. You should consult your estate-planning attorney or qualified tax advisor regarding your situation.
