For example, consider a couple who purchased 500 shares of Apple stock in January 2021 for $130 per share, and then decided to sell it in February 2022 for $175 per share. They would owe a total of $5,468 in taxes on a reported gain of $22,500, leaving them with an after-tax gain of $17,032. If they chose to donate the proceeds of the sale to charity, they could lighten their tax bill, but they would still be paying taxes on the capital gains.
However, if they donated the stock directly to a donor-advised fund like Daffy, they could avoid the capital gains tax altogether. They could immediately deduct the full fair-market value of the asset on their federal income tax returns for that year, rather than their cost basis. Because Daffy is a 501(c)(3) organization, they don’t have to pay taxes on liquidating the asset, meaning the full amount goes to the organization the couple cares about. It’s a win-win situation for both the couple and the charity.
Moreover, Daffy is a great option for a donor-advised fund because it has the capability to receive stock, ETFs, index funds, and cryptocurrencies, which many non-profits do not. This makes it a versatile and convenient choice for those looking to make a big donation and maximize their tax benefits.
In conclusion, donating long-term capital assets directly to a donor-advised fund like Daffy can provide significant tax advantages over selling the asset and donating the proceeds. It allows you to avoid capital gains tax, take an immediate tax deduction for the full fair market value of the asset, and ensure that the full amount of your donation goes to the charity you care about.
Please note that the information contained on this page is for educational purposes only and should not be considered tax advice. Any calculations are intended to be illustrative and do not reflect all of the potential complexities of individual tax returns. To assess your specific tax situation, please consult with a tax professional.