Donor-Advised Funds: How High Earners Cut Their Tax Bill

A donor-advised fund (DAF) is an account at a public charity that takes your contribution now, gives you the tax deduction for the year you make it, and lets you recommend grants to other charities whenever you are ready. For high earners it does two jobs well: it lets you pack several years of giving into one tax year, and it gives you an easy place to send appreciated shares instead of cash.

The case for using one got stronger on January 1, 2026. The One Big Beautiful Bill Act, signed July 4, 2025, put a floor under itemized charitable deductions and capped what any itemized deduction is worth in the top bracket. Neither change is going away, and both reward giving in fewer, larger, better-timed amounts. This guide walks through how, using a married couple earning $1 million as the running example.

What is a donor-advised fund and how does it work?

You open an account with a sponsoring organization, usually a charity affiliated with a large brokerage or a community foundation, and contribute cash or assets. From that moment the money belongs to the charity. You recommend how it is invested and which charities get grants. Sponsors generally follow those recommendations when the recipient is a qualified charity, but they have the final say.

That loss of control is the price of the deduction. The tax code allows a deduction for a DAF contribution only if you get a written acknowledgment from the sponsor stating that it has “exclusive legal control over the assets contributed,” under section 170(f)(18). Keep that letter with your tax records.

In return, the deduction lands in the year you contribute, even if the grants go out years later (and those later grants are not deductible a second time). While the money waits, it can be invested in the sponsor’s options, and its growth is not taxed to you because the assets are no longer yours. Federal law sets no payout deadline, though sponsors have their own rules for accounts that sit idle.

Because sponsors are public charities, the higher deduction limits apply: up to 60% of adjusted gross income (AGI) for cash and 30% for appreciated stock, covered below. The IRS overview of donor-advised funds describes the structure in more detail.

What changed for charitable deductions in 2026?

Three rules took effect for tax years beginning after December 31, 2025. Nino’s 2026 tax changes guide covers the rest of the law; these are the ones that shape how you give.

A 0.5% of AGI floor. Itemized charitable gifts are deductible only to the extent they exceed 0.5% of your contribution base, which is your AGI (section 170(b)(1)(I)). At $1 million of AGI, the first $5,000 you give each year earns nothing. The part most people miss is what happens to that $5,000: it carries forward to a later year only if your gifts that year also exceed the percentage-of-AGI limits (section 170(d)(1)(C)). For almost everyone, it is simply gone.

A cap of about 35 cents in the top bracket. Under the rewritten section 68, itemized deductions are reduced by 2/37 of the lesser of those deductions or the amount by which your income (before them) runs past the start of the 37% bracket. In 2026 that bracket starts at $768,700 of taxable income for joint filers and $640,600 for single filers (Revenue Procedure 2025-32). If your income sits well inside it, each itemized dollar saves 35 cents instead of 37.

The standard deduction is not an itemized deduction, so it keeps its full 37 cents. That makes the bar for itemizing higher than the raw numbers suggest, which matters in the bunching example below. It also flattens the top: a deduction taken in a 37% year now saves about the same as one taken in a 35% year, so you no longer need your single biggest income year to get the best value from a large gift.

A deduction for people who don’t itemize. If you take the standard deduction, you can also deduct up to $1,000 of cash gifts, or $2,000 on a joint return (section 170(p)). Two limits matter here. The gift must go directly to a public charity, and contributions to a donor-advised fund or a supporting organization are excluded. And it is taken alongside the standard deduction, so it does not lower your AGI.

Does bunching charitable donations still work in 2026?

It works better than before. Bunching means giving two or more years’ worth in a single tax year, usually into a DAF, then taking the standard deduction in the years between while the fund pays out your usual grants. The floor is charged once per tax year, so fewer, larger years pay it fewer times.

Take a married couple filing jointly with $1 million of AGI in both 2026 and 2027. They have no mortgage, their state and local tax deduction is $10,000 (at that income the SALT cap has phased down to its $10,000 minimum), and they give $30,000 a year. Both years use 2026 figures for simplicity.

Bunching is worth $10,164 to this couple over two years, and the charities receive the same $60,000. Giving every year, they pay the floor twice and barely clear the standard deduction each time: $35,000 of itemized deductions is worth $12,250, only $336 more than the $11,914 the standard deduction would have saved on its own. Bunched, they pay the floor once and get the full standard deduction in 2027.

The same logic extends to three or four years at a time, up to the AGI limits. In the off years, the grants your DAF makes carry no deduction because you already took it. Gifts you make directly in cash still can: up to $2,000 on a joint return through the non-itemizer deduction.

Should you donate appreciated stock or cash?

If you have shares you’ve held for more than a year and that have gone up, give those. You deduct their full market value and the gain is never taxed. Selling first and donating the proceeds gets you the same deduction but leaves you with a capital gains bill.

Here is the same couple’s $60,000 gift in 2026, made with shares that cost them $15,000:

Giving the shares is worth $10,789 more in federal tax, before any state tax on the gain. (Selling also adds the gain to AGI, which raises the floor slightly.) The 3.8% is the net investment income tax, which applies here because the couple’s income is far above the $250,000 joint threshold. A gift helps with that tax only by keeping the gain off the return; the charitable deduction itself doesn’t reduce net investment income.

If you were going to give cash from savings anyway, give the shares and use the cash to buy the same stock back. You end up holding the same position with a cost basis of $60,000 instead of $15,000. The wash-sale rule doesn’t apply, because it only disallows losses.

Two cautions. Never give shares that are worth less than you paid: sell them, deduct the loss (tax-loss harvesting covers how), and give the cash. And pick the lots yourself. Tell your broker which specific lots to transfer, choosing the ones with the most gain that you’ve held longest, before the transfer goes out.

Giving RSU shares

Your cost basis in RSU shares is their value on the vesting date, which you already paid income tax on, and the one-year clock starts at vesting. Shares held a year or less are short-term property, and the deduction for them is limited to your basis under section 170(e)(1)(A), so you’d lose the deduction on any post-vest gain. Give lots that vested more than a year ago. If you hold a lot of one company’s stock, giving the oldest, most appreciated lots also trims a concentrated stock position without a sale.

Giving ISO shares

For incentive stock options, a gift counts as a disposition, the same as a sale (section 424(c)). Give ISO shares within two years of the grant or one year of exercise and the gift is a disqualifying disposition: the spread at exercise generally becomes ordinary income, the tax the ISO rules were supposed to help you avoid. After both holding periods pass, it works the other way. Your regular-tax basis is the exercise price, so long-held ISO shares are often the lowest-basis shares you own and the most valuable ones to give. Nino’s guide to AMT on ISOs covers the exercise side.

Giving crypto

If your sponsor accepts crypto, note that IRS Publication 526 says digital assets are not publicly traded securities for appraisal purposes. A crypto gift valued over $5,000 needs a qualified appraisal attached to Form 8283; publicly traded stock does not.

How much can you deduct in one year?

Gifts to a DAF fall under the public-charity limits in section 170(b):

• Cash: up to 60% of AGI.
• Appreciated stock held more than a year: up to 30% of AGI.
• Anything above the limit: carried forward for up to five years, under the same limits.

For the $1 million couple, that is $300,000 of stock or $600,000 of cash in a single year. Mixing cash and stock brings in ordering rules (Publication 526 has a worksheet), so run the numbers before a very large year. A liquidity event, such as a tender offer or an acquisition, raises AGI and therefore the limits, which is one reason the year you sell company stock is a natural year to fund a DAF.

The floor interacts with these limits in one useful way. The 0.5% that normally disappears does carry forward in a year when your gifts exceed the limit, so a contribution sized above the ceiling doesn’t lose the floor amount.

What can’t a donor-advised fund pay for?

A DAF grant has to be a gift, with nothing of more than incidental value coming back to you or your family. That rules out a few common requests:

• Gala tickets, auction items, and dinners. In Notice 2017-73, the IRS said a grant that pays for your attendance at a charity event is a benefit to you, even if you pay the non-deductible part of the ticket yourself. Buy the ticket directly.
• Memberships with perks, tuition, and raffle tickets, for the same reason.
• Grants to individuals. A grant to a person rather than an organization is a taxable distribution under section 4966.

The penalty is not small. Under section 4967, the person who recommended the grant or received the benefit owes an excise tax of 125% of the benefit.

Pledges are more forgiving than their reputation. The same notice says the IRS will not treat a grant as a benefit to you just because you pledged to that charity, provided the sponsor makes no reference to the pledge, you get nothing else in return, and you don’t deduct the grant again. Taxpayers may rely on that position until the IRS issues further guidance. Sponsors layer their own grant policies on top, so check yours before telling a charity your pledge will arrive from a DAF.

Can you make a QCD to a donor-advised fund?

No. A qualified charitable distribution (QCD) is a transfer made directly from your IRA trustee to a charity once you are 70½ or older, and section 408(d)(8) specifically excludes donor-advised funds and supporting organizations from receiving one. It also cannot come from an ongoing SEP or SIMPLE IRA, and the charity cannot give you anything in return.

For people old enough to use it, a QCD is now the cleanest way to give. It is excluded from income rather than deducted, so neither the 0.5% floor nor the 35-cent cap touches it, and it works even if you take the standard deduction. Each spouse can give up to $111,000 from their own IRAs in 2026 (IRS Notice 2025-67), and the amount counts toward that year’s required minimum distribution (IRS Publication 590-B). Deductible IRA contributions made after 70½ reduce the amount you can exclude.

Households past 70½ often split the work: QCDs for the charities they support every year, and a DAF funded with appreciated shares for larger or less regular gifts. Nino’s guide to tax planning for retirement covers how QCDs fit with RMDs and Social Security.

What are the year-end deadlines for a DAF contribution?

To count for 2026, the contribution must be delivered by December 31, 2026. What “delivered” means depends on how you give, under the timing rules in IRS Publication 526:

The shares row is the one that catches people. If you give shares to your own broker to transfer, Publication 526 says the gift isn’t delivered until the transfer is actually made. A request you submit on December 29 that lands on January 4 is a 2027 gift. Transfers between firms commonly take several business days and slow down in the last weeks of December, when everyone is doing the same thing, and sponsors publish their own year-end cutoffs. If you don’t have a DAF yet, open it in November; the account has to exist before anything can move into it.

Two pieces of paperwork follow. Get the sponsor’s written acknowledgment, including the exclusive-control language, before you file. And if your noncash gifts for the year total more than $500, file Form 8283 with your return. Nino’s 2026 deadline calendar lists the other December 31 moves to schedule alongside the gift.

Where Nino fits

Deciding whether to bunch, how much to give, and which lots to move depends on a full-year projection of your income, and that has to be done before the transfer cutoffs, not in April. Nino’s Advisor plans pair a dedicated CPA and Financial Planner who build that projection, size the gift against the floor and the AGI limits, and prepare the return that claims it. Nino is a fiduciary to Advisor plan customers and doesn’t hold or manage your investments, so your shares and your DAF stay at the institutions you choose. See what’s included, or book a free consultation before December. Advisor plans start at $3,600 a year, with a 30-day money-back guarantee; see plans and pricing.