sophie wrote: ↑Thu Dec 05, 2019 8:30 am
Actually Vinny, there's no problem at all if ochotona sends the money to a donor advised fund.
DAFs are really nice, as they separate the decisions of how much & when to set aside for charity to which organizations & how much each to favor. Basically since discovering those I will never donate by check again. It'll always be highly appreciated shares. I simply then buy back the same # of shares with the money set aside for charity. Then I get the charitable deduction on the full amount (since I already itemize) AND avoid capital gains tax on the appreciated portion of the donated shares.
The math, for me, works out to a total tax savings of 60% of the donated amount, assuming the shares have appreciated exactly 100%. In other words, a charitable donation of $100 actually costs me only $40. Crazy!
I bet there are people who are quietly managing to figure out a way to game this system to their taxation advantage. Something like creating a charity and then funneling money back to themselves for administrative expenses. I'm sure that's illegal but you can see how great the temptation is.
I agree with you on the major but disagree on the minor.
The major agreement is the value of using a donor advised fund.
I donate Vanguard mutual funds.
It had been major ordeal to donate them prior to opening a donor advised fund. Because they were mutual funds and going to third parties, those third parties HAD to have an account with Vanguard to accept them.
For one organization I'd have to help them set up the Vanguard account, they'd receive my shares, liquidate them and close the account. Which meant the next time around I had to repeat the same time consuming process. And, also because they were mutual funds, Vanguard wanted instructions by about mid-December to promise a December 31st transfer.
In 2012 when I was discussing this ordeal with a friend he asked the simple question, "Why don't you open a donor advised fund?" I did (with Vanguard) and have never looked back. Since both the mutual fund and the donor advised funds are with Vanguard, I get a one day turnaround on the transfers which allows me to delay the decision of what to donate much closer to December 31st.
The minor disagreement is the way I do my deductions.
One year I itemize. The next year I do the standard deductions. The year I itemize I pay / make all contributions / real estate taxes / state taxes for two years. The other year I don't pay a cent for any of them (or, at least that is the way it used to be before the latest tax act capped tax total tax deductions at $10,000).
There is a % limit of your adjusted gross income that you can deduction for donations in one year. Any excess gets carried over to the next year. If I have any of that it is completely wasted as I'm definitely not itemizing and taking the standard deduction.
I bought that up in reacting to Ochotona's comment of donating $50,000 at once. If I'd done that much it one year it would have definitely caused me wasted deductions.
Finally, how do you come up with your 60% amount?
If I bought something for $50 and donated it when it appreciated 100% to $100, I'd have a $50 gain. We both agree in donating it I avoid paying the taxes I'd owe if I just sold it.
In my case, I'm avoiding the 15% federal capital gains tax and 5% (Massachusetts) state tax. 20% total taxes or $10 in taxes on the $50 gain. Therefore the $100 donation after the tax savings still costs me $90, with only a total tax savings of 10% of the donated amount.
We are both in the United States so the same 15% federal capital gains rate applies to you. Therefore, the only difference is your state and local taxes being enormously higher than my 5%.
Vinny