Charitable giving is a key component of many financial plans. It ensures that wealth not only benefit individuals and their loved ones but also supports important causes that can make the world a better place.
And to do this, you may be considering a donor-advised fund (DAF) or a private foundation.
Both allow you to contribute valuable assets toward charity. But they differ across aspects such as tax benefits, flexibility and costs. So let’s dig into these entities to see which one may be best for you.
What Is a DAF, and How Does It Work?
A donor-advised fund is a charitable account sponsored by a third-party such as a financial services firm. A DAF allows you to contribute assets including cash and appreciated stocks and make grant recommendations for Internal Revenue Service-approved charities.
By contributing to your DAF account, you can take an immediate tax deduction. You also choose how you want your contributions to be invested. For instance, most DAF sponsors would give you a list of investment options like mutual funds. This means that your contributions have the potential to grow and provide more support for the charities you recommend.
You can recommend charities right away or take your time and give your contributions the opportunity to grow.
What Is a Private Foundation, and How Does It Work?
A private foundation is an independent organization established and managed by an individual, family or business.
This entity is run by a board of directors or trustees that collects contributions, manages assets, and makes grants. They also file tax returns and address other reporting requirements.
Tax Benefits
With a DAF, you can deduct up to 60 percent of your adjusted gross income (AGI) for cash contributions. And you may deduct up to 30 percent of AGI for publicly traded securities, real property, and privately held assets.
Plus, you can generally deduct the full market value of publicly traded securities held for more than a year.
But there are other potential tax benefits. If you donate appreciated assets like stocks directly to a DAF, you may avoid capital gains taxes.
For example, say you purchased $1,000 worth of stocks that grew to $3,000 two years later. At that point, you sell the shares and donate the proceeds to your favorite charity. In this case, you’d face capital gains taxes on the stocks’ increased value of $2,000 ($3,000–$1,000). This won’t be the case if you had donated that $3,000 worth of stocks directly to your DAF.
Plus, your contributions grow tax-free within a DAF.
Now, let’s look at the tax benefits of private foundations. You can deduct up to 30 percent of AGI for cash contributions to a private foundation and up to 20 percent for contributions of publicly traded securities, real property, and privately held assets.
With private foundations, you can deduct the fair market value of publicly-traded stock. But for all other contributions, your deductibility is limited to their cost-basis. This is the price you initially paid for the donated assets.
Moreover, private foundations must pay a 1.39 percent excise tax on annual net investment income.
As you can see, the tax implications of private foundations can be highly complex. It’s critical you work with a qualified tax adviser when you establish and manage a private foundation.
New Tax Rules
The One Big Beautiful Bill Act made some key changes to charitable tax deduction rules, which affect DAF and private foundations.
For tax year 2026 and forward, you can deduct only the portion of your contributions over 0.5 percent of AGI.
So, if your AGI is $100,000, only the portion of your donation over $500 will be deductible.
A new rule also affects the highest earners. If you’re in the 37 percent federal income tax bracket, the value of your charitable deduction is capped at 35 percent.
So, if you’re in the 37 percent tax bracket, a $10,000 donation can only get you up to $3,500 in tax savings (35 percent of $10,000).
Who Can You Support?
DAFs only allow you to make grant recommendations for 501(c)(3) qualified public charities. You can’t use a DAF to donate to individuals.
But a private foundation may donate to international organizations, direct scholarships, fellowships, and for-profit endeavors in compliance with applicable laws.
Control
When you contribute any assets to a DAF, you are completely giving up control of those assets. The organization that sponsors the DAF legally owns those contributions and can do what they see fit with them.
Further, you can only recommend charities. The sponsoring organization ultimately has the right to decide whether those organizations benefit. This is evident in the name. You only have donor-advisory opportunities.
But this isn’t to say DAF providers won’t work hard to make sure your causes are supported with your donations. Still, it’s important to do your due diligence when selecting a DAF sponsor.
On the other hand, private foundations give donors full control over who benefits from grants.
Costs
Opening a DAF account is generally inexpensive compared to a private foundation. But fees can vary widely across providers. Pay attention to costs like minimum contributions, administrative fees, and investment management fees.
You may also want to look at the expense ratios or fees of your underlying investment options. The higher they are, the less would theoretically benefit your charities.
On the other hand, the costs of establishing and managing a private foundation can be substantial. You’d likely need to hire attorneys, tax specialists, employees, and other professionals for the ongoing management of the foundation. Start-up costs alone can stretch to thousands of dollars. And many experts recommend you don’t start a foundation with less than $5 million.
The Bottom Line
A DAF may best suit individuals or families that want a streamlined, inexpensive, and tax-efficient way to donate to their favorite charities.
A private foundation may be best for families or organizations that want to establish a long-running charitable entity that could support various causes with substantial sums. The latter would likely require you to immerse yourself in the ongoing operations of the foundation. But the DAF sponsor does most of the leg work, allowing you to focus on gathering donations and making grant recommendations.
The Epoch Times copyright © 2026. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
