Donor-Advised Funds (DAFs) have become one of the most popular and strategic ways for individuals and families to manage their charitable giving. In recent years, DAFs have grown significantly, offering donors a flexible, tax-efficient way to support nonprofit organizations like FOCUS North America. DAFs allow donors to make a charitable contribution, receive an immediate tax deduction, and recommend grants over time. 

What Are Donor-Advised Funds?

A Donor-Advised Fund is a charitable giving account administered by a sponsoring organization, such as a financial institution or community foundation. It enables donors to contribute assets—such as cash, stocks, or other investments—to the fund and then recommend grants to nonprofits, such as FOCUS North America, over time.

In 2022, contributions to DAFs reached $85.53 billion, a 9% increase from 2021. Grants made from DAFs to charities totaled $52.16 billion, marking a 9% increase year over year. The total charitable assets held in DAFs in 2022 amounted to $228.89 billion, although market fluctuations caused a slight decline from the previous year. The number of DAF accounts has also grown, reaching nearly 2 million in the U.S., reflecting increased interest from individual and corporate donors alike. This makes DAFs one of the fastest-growing charitable giving vehicles today.

How it works: 

1. You contribute assets to your DAF (e.g., cash, stock, or other appreciated assets). These assets are then held by a sponsoring organization (like Fidelity Charitable or Schwab Charitable).
2. When you contribute to the DAF, you receive an immediate tax deduction for the full amount of your contribution. If the assets have appreciated in value, you also avoid paying capital gains taxes.
3. Once in the DAF, your contribution can be invested, potentially allowing the funds to grow tax-free. This growth can increase the amount you can ultimately donate to nonprofits.
4. Over time, you can recommend grants from your DAF to charities like FOCUS North America, allowing you to plan your giving at a pace that aligns with your goals.

Benefits of Giving Through a DAF

• Immediate Tax Deduction: Donors receive an immediate income tax deduction for contributions made to the DAF. Donating cash by check or wire transfer generally means that the donor will be eligible to deduct up to 60% of their adjusted gross income (AGI), with a five-year carry-forward for unused deductions; and 30% of AGI for gifts of appreciated securities, mutual funds, real estate and other assets, with a five-year carry-forward deduction on gifts that exceed AGI limits. (https://www.nptrust.org/what-is-a-donor-advised-fund/daf-tax-consideration/)
• Avoid Capital Gains Taxes: If you donate appreciated assets such as stocks, you can avoid capital gains taxes while still receiving a deduction for the full market value of the asset. This is especially valuable for donors holding long-term investments with significant unrealized gains.
• Tax-Free Investment Growth: Contributions to a DAF can be invested, allowing for tax-free growth, which means you may have more funds available for charitable donations in the future.