{"id":258667,"date":"2025-12-21T21:33:14","date_gmt":"2025-12-22T02:33:14","guid":{"rendered":"https:\/\/ceoworld.biz\/?p=258667"},"modified":"2025-12-21T21:33:14","modified_gmt":"2025-12-22T02:33:14","slug":"should-you-use-a-donor-advise-fund-daf-after-2025-market-rally","status":"publish","type":"post","link":"https:\/\/ceoworld.biz\/2025\/12\/21\/should-you-use-a-donor-advise-fund-daf-after-2025-market-rally\/","title":{"rendered":"Should You Use a Donor Advise Fund (DAF) After 2025 Market Rally"},"content":{"rendered":"

There are two weeks left before we close the books\u00a0on\u00a02025, and that still may be enough time for some last-minute tax planning. Barring a\u00a0late\u00a0collapse, the stock market is poised to have enjoyed its third consecutive year of\u00a0strong performance. The\u00a0S&P 500 is up roughly 16% year-to-date<\/a>\u00a0at the time of this writing. The index\u00a0could\u00a0possibly\u00a0post\u00a0back-to-back-to-back 20%+ year returns\u00a0for\u00a0a three-peat.\u00a0With the\u00a0markets hovering around all-time highs, and continually breaking records over the past few years, many investors are considering rebalancing a portfolio that may have become overweight\u00a0in\u00a0equities.<\/p>\n

Herein lies the difficulty with year-end planning.\u00a0For nonqualified or non-retirement, investment accounts in which taxes are not\u00a0deferred,\u00a0portfolio adjustments are likely to trigger capital gains taxes. These can come in two forms: long-term,\u00a0investments held for over 12 months, and short-term,\u00a0investments held for less than 12 months. In 2025,\u00a0long-term capital gains taxes<\/a>\u00a0are 0% for married filing jointly with taxable income below $94,050 ($47,025 for single filers), 15% for those between $94,050 and $583,750 ($518,900 single), and 20% for those above the 15% threshold\u00a0plus an\u00a0additional\u00a03.8% Medicare\u00a0surtax\u00a0.\u00a0Short-term gains are taxed more heavily by being added to the investor\u2019s ordinary income.\u00a0Depending on what state you live in, there could be\u00a0additional\u00a0taxes on top of this.\u00a0These taxes may pose a problem, but as I often like to say,\u00a0it\u2019s\u00a0a good\u00a0problem,\u00a0it means your money is growing.<\/p>\n

There are several strategies to help\u00a0mitigate capital gains taxes\u00a0such as tax-loss harvesting, securities-based lines of credit, or holding the asset until death for a potential step-up in basis. Each of these approaches has pros and cons. Tax-loss harvesting, the selling of assets at a loss to offset capital gains, may be difficult if most of the portfolio is positive. Securities-based lines of credit come with fees and interest charges. The step-up\u00a0in\u00a0basis may be a long way off for younger investors who want to enjoy the asset themselves.<\/p>\n

One strategy\u00a0investors\u00a0in this situation could consider, particularly if they are charitably inclined, is donating their appreciated\u00a0asset. Since 501(c)(3) nonprofit organizations are exempt from paying taxes, investors can take the asset they are considering selling at a capital\u00a0gain and\u00a0donate it to a charity. That charity can then liquidate the asset, without incurring any taxes,\u00a0and use the proceeds for their cause. It can be a win-win scenario in which\u00a0the charity receives the donation, just as valuable as any other cash donation, and the investor completely avoids the\u00a0capitals\u00a0gains tax while also possibly locking in a charitable deduction on their tax return.<\/p>\n

The strategy works best when charitable intent and tax planning run on parallel paths. If the investor already\u00a0plans on\u00a0donating money to their favorite charity, church, school, etc., they can reach the same end goal by donating an appreciated asset rather than cash from their savings. If\u00a0it\u2019s\u00a0all the same to the\u00a0tax-exempt\u00a0charity;\u00a0why pay unnecessary taxes\u00a0when the\u00a0asset\u00a0subject to capital gains tax could be gifted in place of\u00a0a\u00a0cash\u00a0donation?<\/p>\n

You may be saying to yourself, \u201cBut I don\u2019t know which charities I want to give to this year?\u201d\u00a0Or,\u00a0\u201cI have a lot more assets subject to capital gains tax than I\u2019d normally donate from my savings.\u201d In\u00a0steps\u00a0the\u00a0Donor Advised Fund\u00a0(DAF)<\/strong>. A DAF can act as a placeholder before the donor has fully made up their mind as to where the donations should end up. However, it gives the donor a current tax deduction just as if they donated directly to a 501(c)(3) organization. Once assets are inside the\u00a0DAF, the account owner can continue investing them for future growth and make grants to qualified charities without any time constraint.<\/p>\n

Funding a DAF can work well in the following scenarios:<\/p>\n