How to Maximize Charitable Deductions with a DAF
What Is a Donor-Advised Fund?
Donor-advised funds, or DAFs, can help high-net-worth investors maximize charitable contribution deductions. With year-end rapidly approaching and key changes to charitable giving on the horizon, now is an ideal time to explore DAFs and how they may enhance your financial strategy in 2025 and beyond.
A DAF allows donors to make a contribution and receive an immediate tax deduction, while distributing grants to charities over time. This can make it easier to support multiple organizations without managing receipts or coordinating year-end payments.
That strategy may be especially appealing in this particular giving season. The One Big Beautiful Bill Act (OBBBA) introduces a 0.5% adjusted gross income (AGI) floor for charitable deductions, effective in 2026. So starting next year, gifts below that threshold will not qualify for a deduction.
For high earners who want to take full advantage of the current rules before they change, DAFs can help.
Understanding Bunching Strategies
A DAF allows individuals to combine several years of intended donations into a single contribution, a strategy known as “bunching”.
Bunching can help donors surpass the deduction floor while maintaining a consistent annual giving pattern. Rather than making a series of annual gifts directly to charities, a donor can make a single, larger contribution to a DAF in 2025, which can then be gradually distributed over the coming years.
For example, a donor with an AGI of $1 million who intends to give a total of $100,000 over four years might normally contribute $25,000 annually. But with the OBBBA’s new AGI floor, part of each subsequent year’s deduction could be lost. A direct gift of $25,000 annually for the next four years would yield a tax deduction of $85,000 for our theoretical donor.
However, by bundling $100,000 into a single DAF contribution in 2025, the donor would secure a tax deduction of the full amount this year, and still be able to distribute the same $25,000 annually. The higher the donor’s AGI, the greater the potential benefit of securing the full deduction ahead of the rule change.
Timing Matters
A DAF also expands the range of assets donors can use. Contributions are not limited to cash. Long-term appreciated securities may increase tax efficiency, as donors can avoid capital gains tax on the appreciation, while also receiving a deduction based on the asset’s full market value.
But time is of the essence. Not only are the rules about to change, but the final weeks of the year are the busiest for DAF providers. Donors planning to contribute cash or securities to DAFs should aim to begin the process by mid-December.
A well-timed contribution can help maximize charitable contribution deductions in 2025, while ensuring funds are available to support the causes you care about for years to come.
Interested in incorporating a DAF into your broader financial strategy? Don’t wait. Contact Griffin Asset Management to speak with an expert today.
