The Best Tax Strategy for Investors: How to Use a Donor Advised Fund

Investing Simplified - Professor G•Apr 27, 2026

Summary

Nolan introduces Donor-Advised Funds (DAFs) as a critical financial tool that has significantly reduced his tax burden, saving him tens of thousands of dollars. He emphasizes that while he is not a tax professional, he shares his personal strategies and experiences with DAFs. The core benefit of a DAF, according to Nolan, is its ability to serve as a strategic tax move, allowing individuals to lock in profits from highly appreciated assets without incurring capital gains taxes, while also securing a tax deduction for the full value of the donated assets. He illustrates this with his own experience, having sold Palantir stock into a DAF after its value appreciated over 200%.

Key advantages of DAFs highlighted by Nolan include:

**Immediate Tax Deduction:** Contributions to a DAF qualify for an immediate tax deduction in the year of contribution, even if the funds are disbursed to charities years later. This is particularly beneficial during high-income years or following significant capital gains events.

**Avoidance of Capital Gains:** Donating appreciated assets like stocks, ETFs, or even crypto directly to a DAF allows the donor to bypass capital gains tax on the appreciation while still deducting the full fair market value of the donation. He uses a hypothetical example of Apple stock bought at $100 and now worth $300, showing how donating the $30,000 position to a DAF avoids taxes on the $20,000 gain and provides a full $30,000 deduction. He also notes that one could then buy back the same stock at the new higher price, establishing a new, higher cost basis, which reduces future taxable gains.

**Bunching Strategy:** DAFs facilitate a "bunching" strategy, enabling donors to consolidate multiple years of charitable contributions into a single year to optimize itemized deductions.

**Tax-Free Growth:** Funds within a DAF can be invested and grow tax-free, potentially increasing the amount available for future charitable giving through compounding. Nolan plans to use this for long-term charitable impact.

**Acceptance of Various Assets:** DAFs can accept a wide range of assets beyond cash and public stocks, including private business interests, real estate, crypto, and restricted stock. This is a strategy used by the ultra-wealthy to avoid massive taxes, especially before a business sale.

Nolan also discusses the cons and considerations:

**Irrevocability:** Once assets are contributed to a DAF, they become the property of the fund and cannot be reclaimed by the donor.

**Limited Control:** While donors can recommend charities, they do not have complete control over the funds. Nolan suggests using larger, reputable organizations like Fidelity, Charles Schwab, or Vanguard for DAFs due to their capabilities.

**AGI Limits:** Contributions are subject to Adjusted Gross Income (AGI) limits (e.g., cash up to 60% of AGI, appreciated assets up to 30% of AGI), with excess amounts carried forward for up to five years.

Nolan concludes by stating DAFs are most suitable for those with high-income years, significant gains from stock/business/real estate sales, plans to donate appreciated assets, annual charitable giving exceeding $10,000, or a desire to build a long-term charitable strategy. He outlines a step-by-step process for opening a DAF, specifically mentioning Charles Schwab's "DAF Giving 360" account, and shares that he invests his DAF in a mix of growth and foundational total market equity index pools.

Mentioned Stocks

PLTR

Sentiment: SELLAction: SOLD

Reasoning: Nolan states he bought Palantir stock when it was around $20-$30, then more at $40-$50. Its value later jumped to $200, and was around $150 more recently. He had over 200% gains on his investment. He sold this highly appreciated stock into a Donor-Advised Fund (DAF) as a strategic tax move. This allowed him to realize these significant gains without paying capital gains taxes and to receive a tax deduction for the full value of the stock. He explicitly mentions this was a way to "lock in profits" without paying taxes.

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