Why Donating Appreciated Stock to a Donor-Advised Fund Can Be a Smart Move in a High-Income Year

Some years come with a pleasant surprise: a performance bonus that’s bigger than expected, a substantial commission payout, or a sharp rise in the value of company stock as RSUs vest. In years like 2025, when the market has been strong and many tech employees have seen their equity compensation climb, these windfalls can easily push your income into a higher tax bracket.

When that happens, charitable giving can become a powerful tax strategy. One of the most effective tools for high-income earners is the donor-advised fund (DAF), especially when paired with donations of appreciated stock.

A DAF offers the chance to support the causes you care about well into the future while taking an immediate tax deduction today. And with charitable giving rules set to tighten in 2026 under the OBBBA, this year provides an important opportunity to maximize deductions while they’re still fully available.

What Is a Donor-Advised Fund, and How Does It Work?

A donor-advised fund is a charitable giving account set up through a public charity or financial institution. Think of it as a flexible, tax-efficient hub for your philanthropy.

When you make contributions of cash, appreciated stock, or other assets into the fund, you receive an immediate tax deduction for the full amount (subject to IRS limits). The assets then grow tax-free inside the DAF, and you can recommend grants from the fund to qualified charities over time.

A few key traits make DAFs especially appealing:

• You get the tax deduction right away, even if you don’t decide where the money goes until later.
• You can donate appreciated investments, avoid paying capital gains tax, and deduct the full fair market value.
• You can invest your contributions, potentially increasing how much you’re able to give in the future.

Why DAFs Are Especially Helpful in High-Income Years

For high earners, especially those who experience fluctuating income, DAFs can turn timing into a tax advantage. Here are some of the key benefits:

• You can “bunch” giving into a single year. If your income spikes one year but returns to normal the next, consolidating multiple years of charitable giving into the high-income year can maximize your deductions when they matter most.
• You can reduce your exposure to higher tax brackets. A well-timed DAF contribution may bring taxable income back down below a bracket threshold or lower the amount taxed at a top marginal rate.
• You can donate appreciated stock for an even bigger benefit. Giving stock instead of cash allows you to deduct the full fair market value of the shares, avoid capital gains taxes entirely, and retain cash flow for personal or business needs. This combination often results in significantly larger tax savings compared to donating cash alone.
• You maintain full control over the timing of your giving. Even though you receive the deduction in the tax year you make the donation, you can spread grants out over several years. This lets your money support long-term commitments without rushing decisions.
• The timing matters even more in 2025. With charitable deduction rules scheduled to tighten in 2026, many high earners—especially those consistently in the top bracket—will lose access to today’s more generous tax treatment. For many taxpayers, 2025 is the last year to take full advantage of these benefits.

To illustrate how impactful this approach can be, let’s look at a case study involving a high-income earner who was able to significantly reduce her federal and state tax liability by contributing appreciated stock to a DAF in the same tax year.

Case Study: Donating Shares of Appreciated Stock to a Donor-Advised Fund to Offset a One-Time Income Spike

Jenna, a senior leader at Amazon, knew 2025 would be an unusually high-income year. A one-time $100,000 performance bonus pushed her AGI after deductions to roughly $700,000, placing her firmly in the 37% federal tax bracket.

On top of that, her portfolio included a substantial amount of Amazon stock from vested RSUs, now worth about $750,000, thanks to years of appreciation.

While grateful for her success, Jenna wanted to reduce the sting of this income spike and support the women-in-tech nonprofits she deeply cares about. Her financial advisor recommended a strategy that checked both boxes: using a donor-advised fund (DAF) to bunch charitable giving into 2025.

Here’s how her tax picture changes when she contributes $100,000 in appreciated Amazon stock to a DAF by year-end.

Scenario #1: No Charitable Contribution

AGI after deductions: $700,000

Filing status: Single

State: Virginia

Federal Income Tax

• With $700,000 of post-deduction AGI, Jenna remains in the 37% bracket.
• Approximate federal tax liability: ~$215,000–$225,000

Virginia Income Tax

• Virginia’s top rate is 5.75%.
• Approximate state tax: ~$38,000–$40,000

Total Tax Liability Without Planning: ~$255,000–$265,000

All of Jenna’s marginal income, including her one-time bonus, is fully taxed at 37%.

Scenario #2: Jenna Donates $100,000 of Appreciated Shares to a Donor-Advised Fund

Jenna donates $100,000 worth of appreciated Amazon stock. This reduces her taxable income, eliminates capital gains on the donated shares, and allows her to diversify her stock portfolio without taking a major tax hit.

Federal Tax Impact

Charitable Deduction Limits for 2025:

• Appreciated securities: up to 30% of AGI
• Jenna’s AGI is high enough to absorb the full $100,000 deduction.

New AGI After Contribution

• $700,000 (after deductions) – $100,000 DAF contribution = $600,000 taxable AGI

This moves her out of the 37% bracket and into the 35% bracket, reducing tax on both her bonus income and a portion of her base compensation.

Federal Tax Savings from Deduction

• Charitable deduction: $100,000
• At a 35% marginal rate: $100,000 × 35% = $35,000 federal savings

Because some of this income would otherwise have been taxed at 37%, her blended savings are slightly higher:

• Total federal income tax saved: ~$36,000–$37,000

Avoided Capital Gains on Donated Amazon Stock

• Jenna donates $100,000 of stock from her $750,000 position.
• Her cost basis in the shares is $40,000, so she has an embedded gain of $60,000.

If she sold the stock to donate cash:

• Federal long-term capital gains tax: 20%
• Net investment income tax: 3.8%
• Total capital gains rate: 23.8%

By donating her shares to a DAF rather than selling them first and donating the cash, Jenna avoids paying $14,280 in capital gains taxes.

$60,000 × 23.8% = $14,280

Total Federal Benefit

• Income tax savings: ~$36,000–$37,000
• Avoided capital gains: $14,280

Total Federal Savings ≈ $50,000–$51,000

Virginia State Tax Impact

Avoided Capital Gains

• Virginia taxes capital gains at ordinary income rates.
• Avoided state capital gains tax: $60,000 × 5.75% = $3,450

State Benefit from Charitable Deduction

• Virginia allows itemized charitable deductions.
• $100,000 × 5.75% = $5,750 state tax saved

Total State Savings: $3,450 + $5,750 = $9,200

Total Combined Benefit of the DAF Strategy

Federal income tax savings: ~$36,000–$37,000

Avoided federal capital gains tax: $14,280

State income tax savings: $5,750

Avoided state capital gains tax: $3,450

Total Savings: ~$59,000-$60,000

Why Donating to a DAF Worked So Well for Jenna

By contributing $100,000 in appreciated stock to a donor-advised fund, Jenna reduced her taxable income, avoided capital gains taxes, dropped out of the top federal tax bracket, and saved roughly $60,000 in combined federal and state taxes. She was also able to reduce concentration risk in her investment portfolio without the associated tax liability.

• The appreciated stock donation delivers the biggest punch. Jenna deducts the full $100,000 fair market value and avoids tax on the embedded $60,000 gain.
• The deduction directly offsets a temporary income spike. Her 2025 bonus becomes significantly less painful from a tax standpoint.
• The DAF gives her time to decide where money goes. Jenna can distribute grants over many years, even though the tax benefit is immediate.

Maximizing Your Impact and Tax Savings with a DAF

A high-income year doesn’t have to mean an outsized tax bill. As the case study illustrates, a donor-advised fund can turn a temporary surge in income into an opportunity to strengthen your financial plan and your philanthropic impact at the same time.

And when you combine a donor-advised fund contribution with gifts of appreciated stock, the benefits multiply: you reduce taxable income, avoid capital gains, and create a flexible pool of charitable dollars you can use for years to come. For many high-income earners, this strategy is a way to redirect dollars that would have otherwise gone to taxes into causes that reflect your values.

At Simplicity Wealth Management, we regularly help clients in the tech industry incorporate DAFs into their financial plans, aligning tax strategy, philanthropy, and long-term goals. If you’d like to explore how this could work for you, we invite you to schedule a complimentary Simplicity Session.