DAFs are charitable giving vehicles that allow donors to make an irrevocable charitable contribution in a specific tax year to realize an immediate tax benefit and then recommend charitable grants from the fund over time. Donors can put money into a donor-advised fund account, where it can be invested and grow tax-free.
After that, the donor can suggest grants to their favorite qualified charities whenever it’s convenient for them. Donors can give money or other things, like stocks or real estate, as well as cash. If the value of the assets has gone up, the donor can avoid paying capital gains taxes, which is an added tax benefit. Donors who would otherwise have to set up a foundation or trust can save time and money by using a DAF instead.
Donors can choose between mainstream investments and impact investments through a number of specialized DAFs. Donors can increase the social impact of their DAFs by investing them in businesses with a social impact until they decide how to give the money to charity. Since DAF assets have already left the realm of philanthropy, they will never go back to the donor. This means that DAF capital can take more risks and encourage other commercial investors to get involved in impact ventures.