How to Use a Donor-Advised Fund to Reduce Taxes

Using a donor-advised fund to reduce taxes is becoming one of the most effective ways for business owners to structure charitable giving.

Most business owners give to charity every year. But very few structure their giving in a way that meaningfully reduces their tax bill.

If you want to use a donor-advised fund to reduce taxes, you need to understand how it works and why timing matters. A donor-advised fund is not just a giving tool. It is a tax planning strategy that allows you to take an immediate charitable deduction, invest the funds tax-free, and distribute money to charities over time.

Instead of writing checks throughout the year and hoping it helps at tax time, a donor-advised fund allows you to control when you take the deduction and when charities receive the funds. That flexibility becomes especially valuable in high-income years, bonus years, or after a major liquidity event.

In this guide, we will break down how a donor-advised fund tax deduction works, how donating appreciated assets can eliminate capital gains tax, and how to structure your charitable tax strategy for maximum impact.

What Is a Donor-Advised Fund?

A donor-advised fund is a tax-advantaged account designed specifically for charitable giving.

Think of it like a retirement account for philanthropy. Instead of saving for retirement, you are setting aside money for qualified charities.

Here is how it works:

• You contribute cash or appreciated assets to a donor-advised fund.

• You receive an immediate charitable tax deduction.

• The funds grow tax-free inside the account.

• You recommend grants to qualified charities over time.

The key detail is that contributions are irrevocable. Once funds are placed into a donor-advised fund, they must go to qualified charitable organizations. That irrevocable structure is what allows you to claim the tax deduction immediately.

How the Donor-Advised Fund Tax Deduction Works

The charitable deduction rules are generous, but many taxpayers do not maximize them.

IRS charitable contribution deduction limits allow you to deduct:

• Up to 60% of your adjusted gross income (AGI) for cash contributions
• Up to 30% of your AGI for appreciated assets such as stock

When you contribute to a donor-advised fund, you receive the deduction in the year you make the contribution, not when the money is distributed to charities.

That timing difference is critical.

If you experience a high-income year, receive a large bonus, sell a business, or have a liquidity event, contributing to a donor-advised fund allows you to offset more taxable income in that specific year.

 

Why Business Owners Use a Donor-Advised Fund to Reduce Taxes

Business income fluctuates. Some years are strong. Some years are slower. Some years include major spikes in profit.

A donor-advised fund to reduce taxes strategy allows you to align your charitable deductions with those fluctuations.

For example:

• Record profit year? Contribute more to your Donor-Advised Fund and reduce taxable income.
• Sold a business or large asset? Offset the income spike.
• Exercised stock options? Capture the deduction in that same year.

Instead of spreading donations evenly and losing tax efficiency, you can strategically time your contributions.

The Double Tax Benefit When You Donate Stock Through a Donor-Advised Fund

One of the most powerful strategies inside a donor-advised fund is donating appreciated stock.

When you donate stock through a donor-advised fund, you receive two tax benefits:

• You receive a deduction for the full fair market value of the stock.

• You avoid paying capital gains tax on the appreciation.

If you sell the stock first and then donate the cash, you trigger capital gains tax. That reduces the amount available for charity. According to the IRS rules on donating noncash property, taxpayers who donate appreciated assets directly to a qualified charity may deduct the fair market value while avoiding capital gains recognition.

When you donate stock directly to a donor-advised fund, the fund sells it tax-free because it is a 501(c)(3) organization. That means more money goes to charity while you still receive the full deduction.

For business owners and investors with brokerage gains, this can significantly increase both impact and tax savings.

🚀 Are you serious about building a donor-advised fund to reduce taxes strategy? Start by reviewing our free tax savings starter kit for business owners.

 

👉 If you had a high-income year and are unsure how to structure your charitable deductions, you can schedule a free tax strategy call to see how this fits into your broader plan.

The 0.5% AGI Rule and the Bunching Strategy

Recent tax law, IRS Publication 526, introduced a 0.5% AGI floor for charitable deductions.

This means only charitable contributions above 0.5 percent of your AGI qualify for a deduction. For many households, this reduces the value of annual giving deductions.

One solution is bunching.

Bunching means combining multiple years of charitable contributions into a single year. You take a larger deduction in that year, clear the AGI floor more efficiently, and then distribute funds to charities over time from your Donor-Advised Fund.

Example:

Instead of giving 2 percent of income every year for five years, you contribute 10 percent in one year to your Donor-Advised Fund. You capture a larger deduction upfront and maintain consistent charitable support through scheduled grants.

This approach can dramatically improve your charitable tax strategy.

Donor-Advised Fund vs Private Foundation

Some people confuse a Donor-Advised Fund with a private foundation.

Private foundations can make sense for ultra-high-net-worth families, but they come with:

• Legal formation costs
• Ongoing compliance requirements
• Annual tax filings
• Administrative overhead

A donor-advised fund provides similar flexibility without the operational burden.

For most business owners, a Donor-Advised Fund is simpler, more cost-effective, and easier to manage.

What You Cannot Do With a Donor-Advised Fund

It is important to understand the restrictions.

You cannot:

• Use donor-advised fund assets for political donations
• Pay private school tuition
• Purchase auction items that provide personal benefit
• Take the money back for personal use

Funds must go to qualified charitable organizations.

That one-way structure is exactly what makes the immediate deduction possible.

Is a Donor-Advised Fund Right for You?

A Donor-Advised Fund may make sense if:

• You give to charity regularly
• You have appreciated stock or investment assets
• You experience fluctuating income
• You want more control over timing your deductions
• You want to simplify multi-charity giving

If you are already writing checks every year, a Donor-Advised Fund simply adds structure and strategy to what you are already doing.

Final Thoughts: Giving Smarter While Paying Less in Taxes

Charitable giving is not just about generosity. It can also be a powerful tax planning tool when structured correctly.

Using a Donor-Advised Fund to reduce taxes allows you to:

• Capture deductions in high-income years
• Eliminate capital gains when donating stock
• Spread charitable impact over time
• Simplify your giving strategy

If you want help implementing strategies like Donor-Advised Funds as part of a proactive tax plan, our team at TaxElm works with business owners every day to build customized tax reduction strategies.

Strategic giving is not just generous. It is smart tax planning.

👉 Psst. Ready to turn your charitable giving into a real tax strategy? Open a donor-advised fund with Daffy and start giving more strategically today

 

 

FAQ About Using a Donor-Advised Fund to Reduce Taxes

How does a Donor-Advised Fund reduce taxes?

A Donor-Advised Fund reduces taxes by allowing you to take an immediate charitable tax deduction in the year you contribute. The contribution lowers your taxable income, and the funds grow tax-free until you distribute them to qualified charities.

When should I use a Donor-Advised Fund?

A Donor-Advised Fund is most effective in high-income years. If you receive a large bonus, sell a business, exercise stock options, or have an unusually profitable year, contributing to a Donor-Advised Fund can significantly reduce your taxable income for that year.

Can I donate stock to a Donor-Advised Fund?

Yes. You can donate appreciated stock directly to a Donor-Advised Fund. When you donate stock through a Donor-Advised Fund, you receive a deduction for the full fair market value and avoid paying capital gains tax on the appreciation.

What is the 0.5% AGI rule for charitable deductions?

The 0.5% AGI rule means that only charitable contributions above 0.5% of your adjusted gross income qualify for a deduction. This makes timing and bunching contributions into a Donor-Advised Fund even more important for maximizing tax savings.

Is a Donor-Advised Fund only for wealthy individuals?

No. While high-income earners often benefit the most, a Donor-Advised Fund can make sense for any business owner or individual who gives to charity regularly and wants a more structured charitable tax deduction strategy.

Can I take the money back from a Donor-Advised Fund?

No. Contributions to a Donor-Advised Fund are irrevocable. Once funds are donated, they must go to qualified charitable organizations. This one-way structure is what allows the tax deduction to be taken immediately.

Transcript: Introduction to Charitable Giving

If you are a business owner, high income earn, or just someone who wants to give more. Strategically, this episode is gonna change how you think about charitable giving. I’m sitting down with Adam Nash, the CEO of dfi, a platform that’s redefining donor-advised funds. We’re gonna be diving into what dafts are, how they work, and why they’re one of the most underutilized tax strategies available today.

Whether you give $500 a year or $50,000 a year. This conversation could unlock huge benefits for your finances and your impact. So let’s dive into it. Adam, welcome to the show. Mike. Thanks for having me. Yeah.

Understanding Donor-Advised Funds (DAFs)

So let’s start out with this conversation just on the basic level. What exactly is a donor-advised fund, because I think people might have heard of that concept, but they don’t really know what it [00:01:00] is and how it works.

So just start from a basic level. What is a donor-advised fund or a daf? Yeah, it’s funny. Donor-advised funds have been around for decades and all the major banks and brokerages offer them, but I’m still surprised how many people haven’t heard of them. And so usually when I explain it, I just say that a donor-advised fund sometimes it’s called a daf is just another type of tax advantage to account, and it’s one for charitable giving.

So sometimes I compare it to like a 401k or an IRA for retirement. A DAF is for charity and with a donor-advised fund, it’s actually very simple. You can take money put it aside for charity. You get an immediate tax deduction, right? Charitable tax deduction. In that year, the money is invested tax free in a range of options, so it can compound over time.

And then anytime you want the money to go to a legal charity in the US there’s over 1.7 million charities in the US alone. You just let the donor-advised fund know and they send it off with all sorts of controls about what information you disclose [00:02:00] to the charity or don’t disclose. So it’s really an amazing financial product.

It makes people fundamentally more generous when they put money aside for charity. And then the truth is, most accountants are fans when it comes to tax time increasing your charitable giving. So it’s really a win across the board.

The Benefits of DAFs for All Income Levels

Yeah I think a lot of times when people think of donor-advised fund, when it first comes to the mind of somebody, they think this is for the rich, right?

These are for uber wealthy people, and that’s what DAFs are for. And so like me only that’s given a couple thousand dollars away into charity on an annual basis as an example. DAF doesn’t even make sense for that. So talk to me a little bit about when you started Daffy, the company what kind of problem were you trying to solve when you created that, and what was the reason for creating or starting that company?

Yeah. I think what you’re asking is a really good question. And it’s actually part of the reason that we did start Daffy. Daffy stands for the donor advise fund for you. We really came outta the gate. With this idea that, listen, not everyone gives to charity, but there’s about 50 to 60 million households in the US that give to charity every year.

And most of them [00:03:00] hadn’t heard of this account type. And I think that’s because a lot of the existing institutions really do target it at the wealthy, right? They, their business model is to charge a percentage of assets. And so it just turns out that a percentage of a million dollars or a hundred million dollars or a billion dollars is a lot more than, the average American gives to charity every year.

Our median customer at Daffy puts aside a few thousand dollars a year for charity and gives to about a half a dozen charities a year, which is very normal for the United States. So I think it’s not unusual. But there’s nothing about a donor advised fund by itself. That means you have to be wealthy.

Like I said, it’s a very old fashioned idea of putting money aside for charity. The truth is for most of us, our income is unpredictable, right? You have good years and not so good years. It turns out, by the way, our tax system taxes you more in the good years. Than in the not so good years.

So the idea of putting money aside for charity in the good years so that you have more money to give in the not so good years [00:04:00] really speaks to a lot of people about a better way to manage this important financial task. Giving isn’t just a financial task. It’s something we teach our children.

It’s something that we care about. It’s how we live our lives. But it is financial, right? And this idea of having to reach into your wallet every time a charity asks you to give. Versus having an account set aside for it. Once people get a donor-advised fund, they often never go back.

Yeah. It’s just, it just is a better way to manage your giving. Yeah. Complete sentence.

Tax Advantages of Donor-Advised Funds

And so when we talk about the tax piece of a donor-advised fund, how much can folks get as a tax deduction when putting money into a DAF and, what are the tax benefits when contributing to that donor-advised fund?

Yeah it turns out that, taxes are a big piece of it. Like I said, for most of our members, at Daffy. What they really like is just having the money put aside for charity so they can give it when they want to. And in fact, we encourage people to treat it like a financial goal.

Whatever you give to charity every year. It should be in your budget, [00:05:00] right? Like in the end, the dollars and cents have to add up. But when it comes to taxes, the charitable deduction is one of the most generous tax deductions there is. You can actually deduct up to 60% of your adjusted gross income when you’re donating cash.

If you’re donating stock or mutual funds or investments like crypto, et cetera, you can deduct up to about 30%. Of your adjusted gross income. And so that’s really a phenomenal deduction. And so if you happen to be fortunate enough to either have a really good year or a bonus, a liquidity event anything that means that your income spikes in one year.

Most accountants, most financial advisors will encourage you to look at a donor advised fund. Because putting money aside for charity in that year means that you get the tax deduction in the year where it matters the most. And then that money is invested tax free. And it’s compounding over time.

And so what better way, by the way, to take advantage of a little bit of a windfall or some good fortune to actually put some money, some of that money [00:06:00] aside for charity so that it benefits not just you, but the organizations that you care about. Yeah, that’s a good point. And one thing to think about is as we’re talking about the 60%, if it’s cash, 30%, if it’s a stock just to confirm, and the reason that you get the deduction right away, even though it’s not going to the end charity per se, that immediately it’s gonna go there eventually, but it’s not going there immediately.

The reason for that is, is because these funds are getting put into a donor-advised fund and you don’t have access to that. So it’s not like I can put. $10,000 into your donor-advised fund on the 30th of December, and then on January 10th be like, oh, just kidding. I didn’t want to do that. I’m gonna pull these funds back.

Obviously you can’t do that with a daf. That’s right. And I think that’s a really important point to make which is the reason the donor-advised fund structure works is because the donor advised fund itself is a charity, daffy Charitable Fund is a 5 0 1 C3. Tax exempt organization. And so what you’re doing with a donor-advised fund, whether you [00:07:00] get use DAF E or another provider like Fidelity or Schwab or Vanguard or any of these other providers is, those are all nonprofits that have set their mission to basically help people put money aside for charity and then distribute it to other organizations when it makes sense.

And so that’s, like I said, this concept has been around for decades really. The first donor advised funds in the us, predate World War ii, right? They go all the way back to the thirties. But that the important part from a tax perspective is you’re right. The reason you get the tax deduction is because you’re making a donation to a charity.

So that’s a one-way trip. You don’t get to make the TA take the tax deduction and then get the money back. Fundamentally, from our perspective, this is part of what makes people more generous is that it is a one-way trip, right? You put the money aside for charity, that’s where it can go to any charity in the United States, any legal charity.

But the catch is, it has to go to charity, right? And so it turns out for a lot of people in their giving journey, that’s actually the hardest step. Is to actually say, Hey, I’m putting this money [00:08:00] aside, not for any of my other goals, but this money is for charity. But donor advised funds make it so easy to do and the truth is, once you have the donor advise fund, you have this flexibility because anytime someone asks you to give, it could be your kid’s school, it could be a local organization, it could be a religious institution, a church, a synagogue, et cetera.

It’s so much easier to say yes when you already have the money put aside. And so most of our members actually just love that feeling. Of knowing that if they get asked to give, they can actually focus on the problem they wanna focus on, which is, do I wanna support this organization, not the budgeting problem of do I have the money available to give right now?

Yeah, makes sense.

Setting Up and Using a Donor-Advised Fund

And you talked to something, you talked about a cash gift and then as an example, stock or crypto or business equity as a gift. And this is something that I actually did myself this year is in, when I was giving to our church we took some of our brokerage gains.

We had a taxable, gain we didn’t sell we, but we were in a tax position, in a gain and said, okay, instead of selling [00:09:00] that and then donating the cash to the church, we’re just gonna give the stock to the church and then replenish the money in the brokerage account. Can you do the same with a donor-advised fund, or do you have to fund a DAF with cash?

No. another great question and donating stock is really a hot topic. Like there are, I have heard more and more churches, synagogues, school districts. A lot of charitable organizations are realizing that actually donating stock is a great way to raise money for their organizations and for individuals.

The tax benefits are phenomenal because when you donate stock, you get a double tax win. Yeah, first, if you’ve held the stock more than a year, you get to deduct the full market value, right? So that’s an incredible tax deduction right then, and that comes off your income taxes, right? That’s, those are the highest rates.

And then the second one is you never pay the capital gains taxes, right? So if you want to give a thousand dollars or $10,000 to an organization, if you sold the stock, then you’d have to pay capital gains taxes. You’d have less money to give to charity. [00:10:00] If you just give the stock to charity, the charity is a nonprofit, so they’ll never pay the taxes, and so you’re getting more money to the organizations and the causes that you care about.

In fact, this is actually one of the big benefits of having a donor-advised fund, is that donor-advised funds can handle almost any type of contribution. Like here at Daffy, you can link your bank account, you can use credit card Apple Pay. You can also donate stock mutual funds, ETFs. We support every crypto that Coinbase supports over 300 different assets.

We even support private stock for startup companies. And so fundamentally we try to make it as easy as possible for people to put money aside. Most nonprofits can’t handle stock donations. And most of us don’t want to give all the stock to one organization. We want to divide it up across the organizations we support or do it over time. And the donor advised fund gives you that flexibility. It was such a hot topic. I will tell you, we are still still recovering from an amazingly generous holiday season. [00:11:00] Obviously the stock market has been on fire in, in many different areas, but we saw a huge number of people.

In November and December, basically putting stock aside for charity for this reason, because when you use a donor-advised fund, you don’t have to worry about whether your church or your kids’ school can handle a stock gift. Yeah. The donor-advised fund gets the cash to the organization and handles all the complexity of dealing with, selling the stock, reinvesting it in a portfolio, et cetera.

Yeah. No, that’s great.

Impact of Recent Legislation on Charitable Giving

So let’s talk a little bit about, with last year the one big beautiful bill passed and a lot of different things in that bill, part of it was charitable contributions and there was some changes in there. So talk to us a little bit about how that bill impacted some of the charitable tax deductions.

There are a number of different changes in that bill, but probably the biggest one that everyone’s talking about is they added new limit, a new floor where they said only charitable giving above 0.5% [00:12:00] of your a GI is tax deductible, right? So if you donate 1% of your a GI, half of your deduction goes away.

And 0.5% sounds like a really small number. And it is in some ways. It’s half a percent. But it turns out the average American gives about 2% of their income every year to charity. I know that we’re all pushing, we’re raised, right? Be more generous. Give maybe more like 10% than 2%, but on average it’s 2%.

And so what that means is a half percent can mean that you’re giving up like a quarter. Of your tax deduction every year. And so the big impact of that bill has actually been a boom, I think, around donor-advised funds. Because if you do the math, it’s much better to put multiple years of giving aside in one year.

Take that tax deduction then spread out the giving over a number of years, right? You can see it in your head, right? If your choice is either giving 2% every year for five years. [00:13:00] Every year, you’re gonna lose a quarter of that deduction, that 0.5%, but if you put aside 10% in one year and have it invested tax free.

Now you can give that 2% every year. In fact, with compounding, you might get the sixth year for free. But you’re only losing 0.5% against that 10%. So you get most of the tax deduction. It’s a strategy called bunching. Once again, it’s all the talk in giving right now in accounts, et cetera. But that probably was the biggest impact of the bill.

Which is why, by the way, we saw, I think so many stock donations last year is a lot of people saying, Hey. Stock market’s been good. If I put aside some of these gains for charity, now I get the best tax deduction and then I can spread my giving out over the next 3, 4, 5 years and give when it makes sense for me.

Like I said, since the money’s invested tax free, it makes perfect sense. Yeah, no, that’s cool. And, bunches is the thing that we’ve done in many different areas when we talk about itemized deductions anyway. So a lot of times we would consider bunching [00:14:00] to bump up itemized deductions.

But an also cool thing about the bill is there’s also an above the line deduction for charitable giving, which opens up the door for people that typically wouldn’t get a deduction for charitable giving because they’re in the they’re using the standard deduction, they’re not itemizing deductions.

That also opened up the door as well for them that doesn’t have that, that, that. 0.5% floor. Yeah, that’s correct. And I think that’s one of the great things. I think the bill in general was very good if you care about charitable giving. But I do think it really put the thumb on the scale towards bunching.

Which, like I said, from what we see in our membership, most of us now don’t have the same income every. You know whether you get paid with bonuses, more business, I’m talking real estate agents. I was talking to one member who was an airline pilot. You get more flights, fewer flights, so many jobs these days.

You have good years and not so good years. And I think in some ways the tax bill is just amplifying that effect. It really makes sense to put money aside for charity in the good years. Get that bigger deduction, [00:15:00] clear that 0.5% floor. And the nice thing about the donor-advised fund is it’s so easy to set up recurring donations to the organizations you support.

So it doesn’t have to be this one-off every year. Get the message. Get the request for a gift. You can just automate your giving to the organizations you care about. Which frankly is a very rewarding thing to do for the organization. Most organizations don’t want a one-time check. But they really, they need to pay people every year.

They, they’re after their cause every year. And so using, putting stock aside, taking advantage of bunching, getting that tax deduction, and then supporting organizations on an ongoing basis. Is really what we see our members do when they get the system in place. Love it. Hey, real quick, if you are a business owner and tired of guessing when it comes to taxes, grab our free tax savings starter kit.

It’s packed with deduction tips, real case studies, and even a b bonus discovery. Call with our team. Head to tax savings podcast.com/starter kit and get it for free. Again, that’s tax [00:16:00] savings podcast.com/starter kitt. Alright, Adam, back to you and I talk to just get a quick understanding.

How does putting money into a daf, and I think we’ve talked about this in detail, but just, typ, people typically are thinking of, I’m just gonna write a check to a charity now with a DAF and just go through the mechanics of it.

I am writing a check or putting stock or putting cash in, whatever it might be, however I’m getting money into it. I’m putting money into the daf, getting the tax deduction right away. And then at any point in time, I’m choosing when those funds go to a charity and which charity I want them to go to.

Is that the type of control and the typical process that you would see someone make. That’s certainly the way people use DAF E today. And I think that if you’re using a modern donor-advised fund from a national provider, that’s how it works. There are over a thousand different donor-advised funds in the us.

And some of them, like community funds really tailor what organizations you can give to, right? They want the money to go to a local charity. Sometimes there’s issue-based funds if [00:17:00] it’s for the environment or some other. Cause it might only direct to charities like that. But for a donor-advised fund, like Daffy, we support any legal charity in the us like we don’t have those filters. So it really is about you making the recommendation and then the donor advised fund fulfilling. That donation. But putting the money in is very easy. We have people who link their bank account and literally put money aside with every paycheck. We have folks like we talked about earlier, who they’re watching the stock market.

They’re doing it more as a financial thing. When they see a stock run up, they’ll take some of that stock and put it aside for charity by sending it to the donor advised fund and capturing those tax benefits. And small business owners, very often at multiple points in the year, particularly at the end of their fiscal year, don’t wanna necessarily show a profit on the books.

And it turns out small businesses can also have donor-advised funds and put money aside for charity. And most small businesses do support local organizations. And there’s a lot of different ways that people come to the decision to put money into a donor-advised fund. [00:18:00] But the actual mechanics of it couldn’t be simpler.

Yeah. Daffy has an app in the app store. You literally can go on your phone, download the app, and within a matter of minutes, link your bank account and send money over. So it really is that we try to make it as simple so that if someone’s making a decision to be generous we don’t care if it’s 11 in the morning or 11 at night.

We try to make it as easy as possible for people to put money aside. Yeah. And I love that mission that you guys have there.

Comparing DAFs and Family Foundations

When I hear the word donor-advised fund or when I hear people talk about it, it often comes up in the same conversation as people talking about a foundation or sometimes they might even get flipped where someone says, I’m opening a foundation, and then you dig deeper into it.

It’s not that a foundation, it is a donor-advised fund. So can you talk to us a little bit about how a donor-advised fund compares to that of a family foundation? Yeah, it’s a great question. I think this has been a big topic for the past few decades, although, to be honest, I think most of that debate has settled out.

The truth is a lot of foundations, even at $20 million, $50 million, a [00:19:00] hundred million dollars are mostly using donor-advised funds in the backend because it’s just so much more efficient. To let a donor advised fund handle things like stock, mutual funds, crypto, et cetera. And just have the organization focused on picking the organizations they wanna support.

Rather than the mechanics and managing money. I. F there are some things donor-advised funds can’t do. Donor-advised funds are not a great solution if you’re looking for kind of an easy job for a family member who can’t get one elsewhere or that sort of thing. But fundamentally, donor-advised funds I think the problem with foundations for most people is just the legal cost and ongoing operational support for the organization, the regulatory requirements, et cetera.

It’s wonderful that people set up foundations and a lot of foundations are set up with amazing causes and and really ways to extend a family’s legacy. But a lot of families are saying, Hey if what we want to have is a tradition of philanthropy tied to our family name, let’s just set up a donor-advised fund and focus our effort on what causes and [00:20:00] organizations we wanna support and not the mechanics of running.

An organization that has tax requirements, reporting requirements, auditing, et cetera. Yeah. And I think when we talk about, this concept of these being reserved for the wealthy, I think sometimes donor-advised funds can be wrapped in the same as foundations, and that’s where you get that idea from.

So talk to us a little bit about how easy is it to set up a donor-advised fund. We talked about the complexities and different things with a a found family foundation, but how easy is it to set up a donor-advised fund through Daffy? Like, how long does it take? What are the costs associated with it?

What does that look like? I’m gonna get myself in trouble here because, as a founder, I always want it to be faster. But I would say that if you download our app from the app store or go to daffy.org, you should be able to set up a donor-advised fund in less than 60 seconds. It’s really that simple.

Like I said, the donor-advised fund has the same simplicity that a lot of other tax advantaged accounts have. Like, how long does it take to open up an individual retirement account? Not that hard, right? Like you, you go online, you fill out some information you move some money over and it [00:21:00] happens.

And setting up a donor-advised fund is really that easy. And it depends how you wanna fund it, right? If you wanna fund it with cash, like I said, we most of our members put aside a few hundred dollars, a few thousand dollars a year for charity. But we have accounts that are measured in six, seven, even eight figures now.

Really phenomenal amounts of money put aside for charity. And the amazing thing is that the markets have been so favorable the last few years. A lot of the people who put that money aside for charity have even more to give now. We keep we really designed our platform to help people be more generous.

I appreciate the kind words about our mission, right? Our mission’s very simple. We believe that we help people be more generous, more often and so we try to make it as easy as possible to set up the account as easy as possible to put some money aside when you want to. A lot of our members do it automatically.

We have a lot of members who schedule recurring contributions, right? So every week or every month, a certain amount of money comes over from the bank account, right? Putting aside money for charity, especially a lot of folks in different religious communities, like that [00:22:00] idea of putting a certain percentage of their income aside for charity every month.

But there’s a lot of other people who do it at the end of the year. Like I just said, we’re still recovering from an incredibly heavy. December. But it was really inspiring to see so many people deciding that they wanted to put money aside for charity, and knowing that’s where all that money has to go.

Yeah. No, that’s great. And when we talk about opening up account, what does that fee structure look like? Is it a percentage, as you mentioned in, in other providers, it’s a percentage of fee of assets that are in there. Is it a monthly cost? What does that look like from a cost perspective, just roughly, I know pricing can change and go up and be different for everybody, but what’s some rough idea of what that pricing looks like?

Yeah so this is actually something that’s very important to us at Daffy. We wanted to have a different structure than the rest of the industry. Most donor-advised funds out there do charge you a percentage of assets usually with a minimum. Vanguard, I love Vanguard, but Vanguard has a $25,000 minimum on their account.

And they charge [00:23:00] 0.6%, which means, for every $10,000 that you put aside for charity you’re paying $60. A year. If you put aside, a hundred thousand dollars that you’re talking hundreds of dollars a year, et cetera. At DAF e we decided to, to structure our accounts with a flat monthly fee, right?

Very transparent, very easy to see. So actually we have free accounts. If you keep your account under a hundred dollars, you give all the money away, it’s actually free. But most of our members pay $3 a month. If you want a family plan. We let you add up to 24 people from your family who can all make recommendations about what charities to give to.

That’s $5 a month. And then at the high end, if you want a custom portfolio of ETFs, et cetera or if you want to customize, you’re giving a large block of stock and you want it to be sold down over time. We have higher membership tiers for that but we try to make it as inexpensive as possible.

From our perspective. Low fees mean that more money is going to charity. Yeah. That’s awesome. And when we talk [00:24:00] about donor-advised funds and Daffy, what are some of the downsides or restrictions that people should know? What would be some of the differences of, or downsides of going into a donor-advised fund versus just going to the charity immediately?

If someone were to be looking at both of those options. Oh, those are both good questions. I would say the biggest thing about putting money into a donor-advised fund, the biggest limitation is that it has to go to charity. It is a one-way trip. There’s no, this is not a place for an emergency fund.

This is not a place for money that you need later. This is money that’s going to charity. And when I say charity, I do mean tax deductible charitable organizations. Political action committees, politics, 5 0 1 c fours, et cetera. Like you can’t use the money for that. You can’t also use the money for self benefits.

So apologies to anyone who thought they found an amazing loophole. You can’t use this to pay your kids’ private school tuition or pay for the, 49 ER tickets you got in the sports auction at the charity. Like it. It has to be for charitable use to a charitable organization. Now, the second question you asked is another really good one, which is.

Why not just give the [00:25:00] money to the charity? And actually there, there’s multiple reasons why having a donor-advised fund is much better. First of all, most people don’t give to just one charity, right? So putting the money aside in one account and then divvying it up across different charities is amazingly powerful and useful.

We talked a bit about things like donating stock. Mutual funds, ETFs, et cetera. Most charities aren’t set up to take that. And even if they can take it, it’s very hard for them to do and expensive and time consuming. And the donor-advised fund just takes all that effort away from them. One of our very first members when we launched first day gave us a bitcoin.

And we asked him like, oh, you’re first crypto user. Why did you give a Bitcoin? He said oh, I get it. My, my congregation doesn’t know what to do with crypto, but I give you the Bitcoin and you get the cash to them. Really turns out to be a big benefit. And then the third reason is because once again, it turns out most donations we make aren’t one time donations.

And so the donor-advised fund lets you set up recurring [00:26:00] donations to the organizations you support. I know that my wife and I are donor-advised fund for all the organizations we support locally and nationally. We make it a point that if we’re gonna support an organization, we support them on an ongoing basis.

And so only a donor-advised fund really lets you put money aside that way, tax free, and then have the money go out every year, which is a big honestly a big weight off the shoulders. For my wife and I. We, we don’t end up in that embarrassing or problematic situation where we’re, oh my God, did we make a donation last year?

What did we do? We have all that information there, so there’s peace of mind there. And frankly, it’s a lot less expensive for the organization as well. They don’t have to chase you down. Most of us hate the sales driven approach that a lot of organizations are forced to do, where they’re, they do these aggressive campaigns to get you to give.

The truth is they don’t love that either, and that’s expensive for them to do. They would much rather have a relationship with people who care, who support the organization. And donor-advised funds make that very easy to do because you can have that confidence that your donation’s gonna go out every [00:27:00] year.

And we see people do it actually sometimes with very personal meaning. We have people who donate and they have something go out to a charity every year on the anniversary of a parent’s passing. Or or maybe it’s their graduation date or something else that’s meaningful to them.

But it’s wonderful to have a place where you can do all of your giving. And the donor-advised fund just makes that very simple to do. Yeah. No, that’s great. And I just wanna wrap up two more questions as we finalize things. When we talk about putting money into a donor-advised fund, obviously we get the charitable deduction going in and then that money is sitting there and growing into various different investments until it’s the point where we decide to distribute it out.

I know the donor doesn’t have the ability to. Access those funds back, but what type of control do they have over the investments? What type of investments can they invest in? What does that look like as far as that money growing within that donor-advised fund?

Yeah. This is another area where when you put money in a donor-advised fund. It is an irrevocable donation. So the final decisions of how the money is invested is up to the donor-advised [00:28:00] fund. And so as a result, different donor-advised funds offer different options. Most of them look a lot like 4 0 1 Ks or some IRAs where they just have a few investment portfolios that you pick from, right?

If you want an aggressive. Portfolio of ETFs, globally diversified, you can do that. If you wanna focus on bonds, you can do that. Cash, different asset classes. So some flexibility there. DAF E actually has a capability. We’ve actually greenlit as an organization over 460 different ETFs from providers like Vanguard and BlackRock fidelity, Schwab, et cetera.

And so if you. Think that there’s a portfolio that makes sense for your giving over time. We let you make that recommendation and if it meets, all the standards gets approved, and so you do have some level of control. Most recently we rolled out a very popular and novel feature for the donor-advised fund space where if you’re giving chunks of stock, most donor-advised funds will liquidate that stock right [00:29:00] away.

Daffy will take your recommendation on to hold that stock or sell it down gradually. Which gives you even more control over really I would say your charitable giving plans. I don’t know the best way to say it, in the end we, best what you’re planning to do. Are you planning to give one time next year or 10 times over the next decade, whatever your plans are.

We try to make it as easy as possible for people to pick the investment portfolio that best matches their philanthropy. Love it. Adam, this has been super helpful. I appreciate you taking the time and just doing a high level overview. And I think my hope is that this really opens up the eyes of people that are maybe have heard this donor-advised fun word, get thrown out there and they’re like, that’s not for me, or that’s just for the ultra wealthy.

And hopefully this opened up their eyes to say, Hey, there is some additional opportunities for them. Adam, give us a little breakdown of where we can find you and next steps. Yeah, it’s it’s pretty simple. Like I said, you can go to the app store and search for Daffy and you can download if you have an iPhone or you can just go to daffy.org.

Webworks, [00:30:00] desktop, mobile, almost any device. We try to make it very easy to get started. And so for a lot of people that’s what they do. They click the link. I think you’re gonna provide one, I think to your audience. We’ll have a link in the show notes that people can click onto.

Yeah, people in click make it easy to get started. People usually put some money aside, they make a donation and they go, wow, that was easier than I thought. And then it encourages people to put more money aside. And I would just encourage people to get started. Whatever you give to charity, a donor advised fund doesn’t make sense.

Unless you’re the type of person who gives to charity, but it turns out most of us do. Most, if you have children you give to your children’s school often maybe you give to your alma mater maybe you belong to a church or a synagogue that you give to somewhat regularly. Most of us have about half a dozen organizations or so that we support periodically.

So if you’re one of those people, I would say just get started. Look at how much you give to charity already. Just look at what you gave last year, right? And then put that aside. This year in a donor advised fund, I think you’ll be [00:31:00] shocked at how easy it is. I think you’ll be also shocked at how good it makes you feel to have that money put aside.

And then for most people, they get used to having this one place for their giving, and they almost get addicted. To that idea of having money to give, right? It’s just such a positive thing to have as part of your life. And most of us care a lot about giving. We see it in our data.

This is the thing about being a technology platform, and I’m always data oriented. For every cohort that we see coming into DAF E every quarter over the last four years they give more and more every year. And we try to make that easy to do. We really think that generosity and giving is an important part of not just leading a healthy financial life, but just a healthy life in general.

Yeah. So I would encourage everyone to give it a shot and try it. Yeah, and that brings up a good point, if you ever thought that there’s a better way to give, it turns out there actually is. And so Adam, a huge thanks to you for joining us and shed light on donor-advised funds and the mission behind what Daffy is doing.

And if today’s episode sparks some ideas, go check out [00:32:00] Daffy. We’re gonna have a link in the show notes to see. You can check out there how easy giving can actually be. And we’re gonna have, again, a link in the show notes for you. And if you found this helpful, don’t forget to hit subscribe, hit that like button and share it with a business owner who’s sick of paying too much in tax.

And if you want help from our team of tax professionals implementing strategies like a donor-advised fund along with so many other tax strategies, visit us@taxelm.com. That’s TAX elm.com, or click the link in the description for a free discovery call. We are helping business owners like you legally lower your tax bill every single day.

Adam, thanks for coming on. Yeah, thank you Mike. It was great to be here.

Thanks for tuning in to the Small Business Tax Savings Podcast. We hope today’s episode sparked some brilliant ideas to help you save on taxes and grow your wealth. If you loved what you heard, hit the subscribe button and share the wealth with fellow entrepreneurs. For a treasure trove of tax saving resources, visit tax Savings podcast.com.

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