A Donor Advised Fund (DAF) is a great way for you to donate to your favorite charities. In this article we’ll talk about how to use DAFs, their tax benefits, and what to do before year end as DAF tax changes are on the horizon.
What is a DAF?
A DAF is a vehicle for collecting charitable donations on behalf of charities. You can contribute cash, securities, or other assets to a Donor Advised Fund. These assets are then moved from the DAF to your favorite charity.
Tax Benefits
A wonderful aspect about DAFs is that you can front load all of your charitable donations in one year and get the tax deduction in the same year. Afterward, you would be able to grant the money to different charities over multiple future years.
For example, you donate $500,000 in 2025 and you get the tax deduction for the entire amount in 2025. Then you grant $100,000 in 2026. The remaining $400,000 stays invested and has the potential to grow tax free, thus creating more money for the charity. In 2027, you grant $100,000 and go from there.
Upcoming Tax Law Changes
When 2026 begins, there will be some DAF tax changes for Donor Advised Funds. They are:
- AGI (Adjusted Gross Income) floor
- Top tax bracket cap
- DAF excluded for non itemized deductions
AGI Floor
In January, the first 0.5% of your AGI donated to charity will not be tax deductible.
In 2025, this does not exist, so every dollar you donate to charity (up to normal IRS limits) is deductible.
Starting next year, some of your charitable gifts will not get a tax break unless you meet the threshold.
Top Tax Bracket Cap
Currently, if you are in the 37% federal tax bracket, you get a 37% benefit from your donations. However in 2026, the top federal tax bracket of 37%, will only get a 35% deduction for taxes.
Two percent may not seem like a lot, but with large donations and over time, it really adds up.
DAF Excluded for Non Itemized Deductions
In 2026, if you do not itemize deductions on your tax return, you can only deduct $1,000 as a single filer and $2,000 for joint filers for charitable purposes.
So if you want to use a DAF to your benefit, you must itemize your deductions and have the amount exceed the standard deduction – $16,100 for single filers and $32,200 for joint filers.
Year End Action Items
Before the DAF tax laws change, here’s what you can do before December 31st.
- Accelerate donations to DAFs before year end
- Get an immediate tax deduction
- Bunch multiple years of contributions into 2025 so you exceed the standard deduction
- Still distribute grants to charities over time
- Higher tax benefit for top tax bracket earners
- You will get a 37% tax benefit instead of a 35% tax relief in the future
Hopefully you can help many charities with your generosity over the next few weeks and years.