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​What is a Donor Advised Fund? (DAF)

A donor-advised fund is a charitable giving account. Donors contribute cash or other assets, generally receive an immediate tax deduction, and may recommend grants to qualified charities in subsequent years.

What is it?

  • A donor-advised fund is a charitable giving account administered by a nonprofit sponsoring organization, such as Fidelity Charitable, Schwab Charitable, or a community foundation.

  • Donors may contribute cash, securities, or other assets and generally receive an immediate income tax deduction in the year of the contribution.

  • Although the sponsoring organization assumes legal control over the contributed assets, the donor may retain advisory privileges regarding the timing and recipients of grants to IRS-qualified public charities.

When is a DAF useful?

  • Bunching charitable contributions: A DAF can be useful when a donor wants to make several years’ worth of charitable contributions in one year to maximize itemized deductions, while distributing grants to charities over time.

  • High-income or liquidity event years: A DAF may be especially useful in a year with unusually high income, such as from a business sale, bonus, stock vesting, or Roth conversion, because the donor can secure a current-year charitable deduction.

  • Donating appreciated assets: A DAF is often useful for contributing appreciated publicly traded securities or other eligible assets, allowing the donor to avoid capital gains tax on the appreciation while still receiving a charitable deduction, subject to applicable limits.

  • Family philanthropy and legacy planning: A DAF may be useful for involving children or other family members in charitable giving decisions and establishing a structured approach to multigenerational philanthropy.

  • Privacy considerations: A DAF may be useful for donors who want to support charities anonymously, since grants can often be made without publicly identifying the donor.

  • Potential for tax-free growth before grants are made: A DAF may be useful when the donor wants contributed assets to remain invested and potentially grow on a tax-free basis before being distributed to charity.

How do you Set Up a DAF?

  • Large DAF’s managed by Schwab or Fidelity require minimum start-up contributions of $5,000

  • Account setup can usually be done online

How do I compute the gain on the sale of 100% of my s corp assets?

  1. Determine the total sale price and any other consideration received.

  2. Allocate that consideration among the assets sold

  3. For each asset, compute gain or loss as allocated amount realized minus adjusted tax basis.

  4. Determine the character of each asset’s gain or loss, this could result in ordinary income tax at ordinary rates.

  5. Pass the resulting items through to the shareholders.

  6. If the corporation distributes the proceeds, separately compute any shareholder-level gain or loss on the liquidation or distribution.

​What happens to my suspended losses?

  • If you sell all of your S corporation stock while your stock basis is zero and your losses are still suspended,

  • Those suspended losses  do not offset the stock-sale gain and are permanently disallowed.

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