Utilize Donor-Advised Fund (§4966)

From Bob Jennings at TaxSpeaker. Check out TaxSpeaker at taxspeaker.com

In 2026 individuals making charitable contributions will, for the first time, face a new “floor” for charitable deductions of ½ of 1% (.005) of AGI. So, for an individual with $200,000 of family AGI that donates $2,500, they will lose the first $1,000 (200,000 x .005) of the deduction, and only qualify for a net deduction of $1,500. Luckily, the floor does not apply in 2025 and individuals should seriously consider making 2026 contributions in 2025 in order to receive the best benefit. One thing to consider is to fund a “donor advised fund”.

A donor-advised fund (“DAF”) is a charitable vehicle housed within a §501(c)(3) public charity that allows a donor to make a gift, take an immediate charitable deduction, and recommend, typically with strong persuasive authority, future grants made from funds in the DAF. Unlike private foundations that require a minimum annual distribution, a DAF has no distribution requirements and can allow investment funds within the account to build up for years or even decades.

A donor-advised fund is a great way to work around the relatively high standard deduction on taxes, which may limit a taxpayer’s ability to gain additional write-offs for charitable contributions. It also allows the taxpayer to generate the deduction this year, but divvy out the funds in future years.

By making a charitable contribution to a DAF (before year end), the taxpayer is able to deduct that amount as charity this year (subject to the 60% of AGI limit). Meanwhile, he or she can distribute the funds in later years, and the money can even grow tax-free in the fund, providing more benefit to the charity.

From the perspective of the organizations the taxpayer supports, nothing changes, but the DAF allows the taxpayer  to control the timing and amount of the charitable tax deduction.

DAF are offered by Fidelity, Vanguard and most brokerage houses.