Individuals, families, and businesses that are interested in charitable giving can make tax-deductible donations through a donor-advised fund (DAF). Donating through a DAF is the most advantageous way for you to get tax deductions for any type of charitable giving.
You can deduct up to 50% of your adjusted gross income (AGI) for gifts of cash and up to 30% of your AGI for mutual funds, appreciated securities, real estate, and other assets. If you donate appreciated stock that you have held for more than one year, you can avoid or reduce capital gains taxes. This way the charity gets more money, and you reduce your tax burden.
These donations can be publicly traded stock, cash, and even certain illiquid assets. The recipient must be a 501(c)(3) public charity that sponsors a DAF program. You surrender ownership, but retain the chance to advise how the account distributes money to charities and how it is invested.
Advantages of donating through DAFs instead of setting up private foundations are that you have lower start-up costs, lower legal, administrative, and accounting expenses, and benefits that you can use for estate planning services.
DAFs have been around since the 1930s, but for-profit investment firms jumped into the game in the 1990s. Such commercially based DAFs have grown exponentially over the past ten years. For instance, Morgan Stanley has the Morgan Stanley Global Impact Funding Trust (GIFT) that held $741 million in assets as of June 30, 2105. Contributions to DAFs reached a record $17.28 billion in 2013—an increase of 23.5% over the previous year according to the National Philanthropic Trust.