Year-End Giving: A Two-for-One Tax Break with Donor-Advised Funds 

If you’ve had a high-income year, perhaps due to equity compensation or other significant earnings, and you’re looking to give back, a donor-advised fund (DAF) can help you make a meaningful difference while reducing your tax bill. These funds offer a simple and efficient approach to charitable giving, allowing you to make a larger-than-usual contribution now and support your favorite causes over time. 

What Is a Donor-Advised Fund? 

A donor-advised fund works like a charitable savings account. You contribute to the fund through a public charity, known as the fund sponsor, and receive an immediate charitable tax deduction for the contribution in the year it’s made. You can then recommend grants from the fund to qualified charities in future years at your own pace. This flexibility allows you to separate the timing of your charitable contributions for tax purposes from when you support specific organizations. 

For those experiencing a high-income year, contributing to a DAF may help reduce taxable income while providing time to make thoughtful decisions about where to give. 

Why Cash Isn’t Always King 

Cash might seem like the simplest option for charitable giving, but it’s not always the most tax-efficient option. Donor-advised funds can accept a wide range of assets, including publicly traded securities, private company stock, real estate, and interests in venture capital or hedge funds. 

Donating appreciated securities, such as your company stock, may provide significant tax benefits. Many donors sell assets like stocks or mutual funds, pay capital gains taxes, and then donate the remaining cash. By contributing appreciated securities directly to a donor-advised fund, you may be able to avoid recognizing capital gains taxes on the appreciation. 

The Two-for-One Tax Advantage 

When you donate appreciated securities that you’ve held for at least one year, you receive a charitable tax deduction equal to their full market value. At the same time, you may avoid recognizing capital gains tax that otherwise would have applied if the assets were sold. This approach can create two potential benefits: 

1. A larger charitable tax deduction: Up to 30% of your adjusted gross income, with excess amounts carried forward for up to five years. 

2. Avoidance of capital gains tax: In many cases, more of your assets are available to support charitable causes. 

This strategy can increase the impact of your giving by improving tax efficiency and directing more resources to the organizations you care about. 

Beginning in 2026, changes enacted under the One Big Beautiful Bill Act modestly reduce, but don’t eliminate, the tax benefit of charitable deductions for high earners. Only contributions exceeding 0.5% of your adjusted gross income qualify for a deduction, and taxpayers in the top marginal bracket receive a deduction capped at 35% rather than the full 37%. While these changes slightly reduce overall tax efficiency, they don’t alter the primary advantage of donating appreciated securities. You may still avoid capital gains tax and receive a deduction based on the full market value. 

A Flexible Tool for Long-Term Giving 

One of the best features of a donor-advised fund is its flexibility. You can contribute in a high-income year to maximize your tax benefit and decide later how to allocate those funds. It’s an ideal way to balance your financial goals with your charitable priorities. 

If you’ve had a financially rewarding year and want to make the most of it, consider opening or contributing to a donor-advised fund. It offers a practical way to combine charitable intent with tax-efficient planning. 

Donor-advised funds also have limitations, including irrevocable contributions, administrative fees, and restrictions imposed by the sponsoring organization. 

Savant Wealth Management provides holistic wealth management services including financial planning, equity compensation planning, investment management, tax planning, and others, on a fee-only basis and as a fiduciary, acting in clients’ best interests. If you want to make greater impact with your charitable giving, schedule a complimentary consultation. 

This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment or tax advice from Savant. Please consult your investment or tax professional regarding your unique situation. 

Bruce R. Barton Managing Partner / Financial Advisor CFP®, CFA®, MBA

Bruce is a CERTIFIED FINANCIAL PLANNER® professional and Chartered Financial Analyst® (CFA®). He works with clients in the technology, biotech, and biomedical industries, drawing on his background in engineering and product management.