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Comment by fmakunbound | Hacker News Reader

Reminds me to donate to Signal again

Speaking of donations (a guy from a food bank whom I see in the Safeway parking lot didn't know this, so I think we can assume not everyone does):

Most "donate" pages do not allow for "donor-advised funds (DAF)." They assume you're giving it with your before-tax money and presumably taking a tax deduction for it.

In a DAF, which your financial institution surely offers, you can donate appreciated assets, e.g. your FAANG stock, and take the entire amount as a tax deduction. So if your 10 shares of Facebook (excuse me, "Meta") stock are at 322, you can take a deduction of $32,200 this year.

What's the catch? That money's gone, and you can't get it back. You can only "advise" your DAF to give it to a 501(c)(3) organization, which Signal is. There are no time limits.

The good part, though, is you can probably have your DAF give the money anonymously, so the charity can't bug you every time they're having a fund drive.

Another benefit, it sounds like, is that you don't have to pay capital gains on selling those shares.

Like, let's say your intent is to donate $10k to some charity, out of the goodness of your heart and/or as a tax write off. You don't have that in cash, but do in stock.

You could liquidate $10k of stock, pay capital gains on it (if it appreciated since acquisition), then donate it. So you're out the capital gains tax.

The method you describe seems more efficient, since you don't need to sell; you simply transfer ownership of the asset.

Or is there still capital gains to be paid?

I wonder if billionaires are setting up charities as trusts for their kids, then "donating their shares to charity?"

You're exactly right, you don't pay capital gains tax, and DAFs really are the poor man's "tax-exempt foundation."

Billionaires have access to much fancier schemes than this, and I won't even attempt to describe all those. But yeah, I imagine "donating their shares without capital gains taxes" figures into them.

I just noticed you said "trusts for their kids" -- that's something different. If the children can access it, it's not a DAF. But trusts are much more complicated, and someone who understands them (which I don't) can hold forth here.

Yeah, I didn't realize what an enormous difference this made until I ran the numbers.

In your example above, let's say the person purchased those 10 Meta shares for $38 each at the IPO and they're worth $322 each now. That's $3220 in proceeds and a $2840 capital gain.

The taxes on this depend on income level and state of residence, but let's say they're in CA making $300K/year. They'll pay 20% federal capital gains tax + 3.8% net investment tax + 10.3% CA income tax, or $968 in taxes, and they're left with $2252.

On the other hand if they donate the shares to a charity (or DAF), they get a tax deduction for the appreciated amount ($3220), which can be taken against 35% federal income tax + 10.3% CA income tax = $1459.

So in the scenario where they just sell the shares, the proceeds after taking taxes into account are:

  Donor     $2252
  Charity      $0

And in the scenario where they donate the shares, they are:

  Donor     $1459
  Charity   $3220

In other words, for an effective cost to the donor of $793, the charity gets $3220.

Right. If you just sell, you can spend some of the money (that you don't donate).

If you donate to a DAF, it's 100% gone to charity, *someday."

HN needs a way to save comments.

That's what the "favorite" link is for.

To clarify, you click the timestamp on the comment to get to the comment-specific "favorite" link

Isn't that double counting? In the first scenario, $2252 is the amount that they get in their bank account post-tax (marginal). In the second scenario, they get $0 in their bank account post-tax (marginal), and there is a deduction but that occurs on the amount donated so they don't really gain $1459 but rather avoided paying those taxes.

Avoiding paying taxes leaves more in your bank account than if you had to pay them, so it's still a gain, isn't it?

To be clear, this is exactly the same for any gift of appreciated stock -- a DAF is not required to donate appreciated stock in-kind and deduct the full (unrealized) price without paying capital gains. But the vast majority of charities are not equipped to accept in-kind stock donations, which a DAF facilitates by taking stock in-kind and cutting the charity a check.

(Also, DAFs allow claiming the deduction during high-income years and deferring distribution to charities over a longer period of time.)

There is at least one intermediate step: it's not prohibitively expensive to set up a charitable remainder trust. You have more control than with a DAF. But you have a fixed cost to set up the trust and some annual administration and tax compliance costs. It can make sense if you plan to donate more than, say, a million dollars.

You indeed don't have to pay long term capital gains tax, although you do have to pay short term capital gains tax.

No? Donations of stock to DAFs are not taxed and the full amount is deducted.

I think this is what the rich do with art, yes.

I don't have this problem, but getting a "fair" appraisal of your art can be tough. Maybe they auction it off, and the proceeds go to their foundations?

This is more or less what billionaires do to pass their wealth to their children. Here's a recent article that goes into detail about one particular family's setup.

https://archive.md/yN7M7

https://www.bloomberg.com/features/how-billionaires-pass-wea...

DAFs and GRATs are completely different vehicles. DAFs are beneficially owned by some 501(c)(3) and withdrawals can only go to arms-length, 3rd party 501(c)(3)s, with no reciprocity attached to the gift.

DAFs are a convenient way to gift appreciated stock (which is already a nice tax gift to the charitable wealthy), but fundamentally not a vehicle for passing money to your heirs.

Your article is about GRATs, which should be illegal.

Yeah, with a DAF you have the administrator cut a check to the qualified beneficiary.

Also, the annual stock deduction limit is capped at 30% or so of income.

While we're on the topic: you can also leave your estate to a DAF. (If you're married or have kids, probably you should ignore this.)

So that money goes to charity, but what charities? You won't be here, obviously. When you're looking into this, see if your DAF administrator allows a "successor trustee." If not, that institution itself (Schwab, Vanguard, whatever) will disburse it.

If they do, you can pick someone whose values you trust to be the successor & disburse the money. (Probably someone younger than you!) You should ask them, or else they'll get a real surprising phone call right after you die.

You can also do it with major crypto tokens. At least with Fidelity Charitable. You get to deduct the market value and don’t pay capital gains.

I don't want to do that regularly so I signed up for an automatic donation subscription.

https://signal.org/donate/

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