3 Simple Reasons You Need to Fund a Donor Advised Fund (DAF) in 2025
A Donor Advised Fund (DAF) is a tool that allows you to contribute to a fund and get an income tax deduction in that year. Speaking of tax deductions, it reminds me that, “I Love Paying Income Tax.” Said No One Ever!
DAFs have become an extremely popular tool. There is over $230 billion in DAFs as of June 2025. This is up from $142 billion in 2020. Most large financial institutions offer DAFs. Raymond James Charitable is the name of The Raymond James DAF. 1)
Mutual Funds and Exchange Traded Funds (ETFs) are the most common investment options in DAFs. Any growth of the assets in DAFs is tax-free.
After funding the DAF, the advisor can request grants to be made for qualified charities. Qualified charities are organizations that have the 501(c)(3) status from the IRS. Charitable organizations operate for charitable purposes and donor’s contributions may be tax deductible.
Keep in mind, the income tax deduction is in the year you fund the DAF. Distributions to qualified charities do not result in a subsequent income tax deduction.
President Trump signed The One, Big, Beautiful, Bill Act (OBBBA) on July 4, 2025, introducing numerous changes to the income tax laws. This legislation made changes that will impact DAFs.
Here are 3 simple reasons you need to fund a Donor Advised Fund (DAF) in 2025.
1) Temporary Increase in State and Local Tax (SALT) Deduction
The bill temporarily increased the SALT deduction cap from $10,000 to $40,000. This is effective for the tax years 2025 through 2029.
In 2030, the SALT deduction will revert to $10,000.
Here is How the SALT Deduction Can Save You Taxes.
This change should allow more taxpayers to itemize their deductions. Taxpayers can deduct the standard deduction or itemize their deductions, whichever is greater. In 2025, the standard deduction is $15,750 for single taxpayers and $31,500 for a married couple filing jointly. The most common itemized deductions are SALT, home mortgage interest, and donations.
The Tax Cuts and Jobs Act of 2017 (TCJA 2017) limited the SALT deduction to $10,000 and essentially doubled the standard deduction. As a result of these changes, the percentage of taxpayers that itemized their deductions dropped from 31% to 9%. 2)
Following the passage of OBBBA and the temporary increase of the SALT cap to $40,000, analysts estimated that 14% of taxpayers will itemize. 3)
This change should help taxpayers that live in states with higher income taxes and property taxes. This would include states like Connecticut, New York and New Jersey.
There is a phase-out for this SALT deduction. For both single filers and those married filing jointly, the phase-out starts at $500,000 of Modified Adjusted Gross Income (MAGI) and is fully phased-out at $600,000.
For the charitably inclined, this is where the DFA comes in. Importantly, contributions to the DAF are tax deductible in the year they are made.
In 2025, you only get a tax advantage if you itemized your deductions.
Nonetheless, from 2026 through 2029, a modest charitable deduction is available for Average Joe’s even if they don’t itemize. Single taxpayers can deduct up to $1,000, and married filing jointly can deduct up to $2,000.
Writing a Check versus Gifting Appreciated Property
While you can always write a check to your DAF, consider gifting appreciated property instead.
Appreciated property is property that is worth more than your cost basis. Your cost basis is, with some exceptions, what you paid for the property. For example, if you purchase Apple stock for $10,000 and its value rises to $15,000, you now hold appreciated property.
The advantage of gifting appreciated property is that you don’t have to sell it, incur capital gains taxes and then donate the cash. Federal long-term capital gains rates are zero for modest incomes, 15% for medium incomes and 20% for higher incomes. Higher income earners may also be subject to the Net Investment Income Tax (NIIT) which is 3.8%. Remember, there are also state income taxes to consider. In Connecticut, the highest income tax rate is 6.99%. It is easy to see a higher income taxpayer who could lose up to 30% in taxes if they incurred capital gains. Said differently:
You can give 30% more by donating the appreciated property.
However, there is a difference in the amount you can deduct between cash and appreciated property. A cash donation is limited to 60% of your Adjusted Gross Income (AGI). A donation of appreciated property is limited to 30% of your AGI. In both cases, however, if you donate more than the limitation, that amount can be carried over for 5 years and deducted in a future year.
2) Starting in 2026, There is a New AGI Floor for Deducting Donations
Starting in 2026, donations are only allowable when they exceed the 0.5% AGI floor for taxpayers that itemize their deductions. See example below.
3) Beginning in 2026, Itemized Deductions, Including Donations, Will Be Capped at 35%
Starting in 2026, itemized deductions, including donations, are capped at 35%. This is even though the highest federal income tax rate is 37%. Keep in mind that no donations are allowed until they exceed the 0.5% AGI floor (see above).
For example, a married couple makes $700,000 in 2026. This puts them in the 37% federal income tax bracket. In 2026, they donate $100,000 to their favorite charity.
They don’t get a deduction for the first $3,500 ($700,000 times 0.5% AGI floor). Therefore, while they donated $100,000, only $96,500 ($100,000 – $3,500) is eligible.
For the $96,500 times 35% limit is $33,600.
Without the AGI floor and the 35% limit, the $100,000 donation would have resulted in a $37,000 deduction ($100,000 times 37% tax bracket).
Know Your Runway
Said differently, have a distribution plan. Donors can set up a DAF with them individually or jointly with their spouse. Some will even list their children. Review the DAF agreement carefully with your financial advisor. In most DAF agreements, the donor is also considered the advisor. The advisor is the one that can make grant requests for funds to be distributed from the DAF to qualified charities.
It is important to have a sense of how long your DAF runway will be. Is it over your lifetime? Is it over you and your spouse’s lifetime? If you are in your 60’s and Diet and Exercise, that could easily be 30 years. Will the DAF carry on with your children becoming the successor advisor?
Currently, there’s no requirement to make annual distributions from a DAF. That said, it’s wise to establish a framework for how much you plan to distribute and when you intend to make grant requests. This plan doesn’t need to be set in stone—just a general outline to guide your charitable giving.
Financial Advisor Bill Bengen first developed the 4% ‘rule’ back in 1994. Rule is put in quotes for a reason. He never intended this to be a rule.
Think of it as a guideline.
Essentially, if you have 50% of the portfolio in equities and 50% in fixed income, you can withdrawal 4% annually and it should last about 30 years. The annual withdrawal rate of 4% is adjusted for inflation annually. 4)
Although Mr. Bengen retired as a financial advisor over a decade ago, he has recently increased 4% to 4.7%.
Use this as a marker. Do you want your DAF to be around for 30 years? Or are you considering a shorter period?
Practical Matters
Charitably inclined taxpayers should consider frontloading future donations they may make annually into a DAF in 2025. For example, you give $2,500 annually to your favorite charity. You also intend to do this for the foreseeable future. If you have the cash, or appreciated property, consider making ten years of donations, $25,000, (ten times $2,500) into your DAF in 2025.
The first reason is the temporary increase in the SALT deduction cap to $40,000 through 2029. In 2030 it reverts to $10,000. This means after 2029, the odds of you itemizing your deductions go down significantly.
Second, in 2025, there is no 0.5% AGI floor and no itemized deductions capped at 35%. This matters to folks in the 37% bracket.
There are clearly some moving parts here. You should request your CPA run a tax projection for you for 2025. This will give you a better sense of the tax benefits you may get by accelerating your donations into a DAF in 2025.
Tell them Tom sent you.
Conclusion
If you need help with the 3 Simple Reasons You Need to Fund a Donor Advised Fund in 2025, give us a call at (860) 645-1515 or E-Mail Thomas.scanlon@raymondjames.com
This is original content written by Manchester, CT Financial Advisor Thomas F. Scanlon, CFP®, CPA.
1)nonprofits.freewill.com – May 2025
2)taxpolicycenter.org – Updated January 2024
3)forbes.com – Updated July 31, 2025
4)bengfs.com – the four percent rule
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that is accurate or complete, it is not a statement of all available data necessary for making an investment decision, it does not constitute a recommendation. Any opinions are those of Thomas F. Scanlon and not necessarily Raymond James.
Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
Change in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James Financial Advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Investing involves risk and investors may incur a profit or a loss.
Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes.