Saving Taxes with Donor-Advised Funds

Brandon R. Amaral, CFP®, EA
Brandon R. Amaral, CFP®, EA

Founder & Financial Planner, Amaral Financial Planning

Everyone wants to receive huge gains on their investments, but no one wants to pay the taxes! So what is there to do? From people who were given shares of Apple as a child or whose company’s shares have skyrocketed, you may find yourself with analysis paralysis when it comes to selling.

Whether you are charitably inclined or are just looking to save on taxes, a Donor-Advised Fund is a very efficient vehicle that allows you to minimize your tax bill while maximizing your charitable giving.

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Here is an overview of Donor-Advised Funds:

What is a Donor-Advised Fund?

A Donor-Advised Fund, or DAF, is a charitable investment account that you can create, manage, and distribute to most qualified 501(c)(3) charities of your choosing.

DAFs offer significant tax deductions to taxpayers who itemize their deductions and provide them with the ability to grow their charitable fund without paying taxes on the gains.

What can you donate?

The easiest way to contribute to a DAF is to write a check or deposit cash. However, the more popular way to fund these accounts is by using highly-appreciated assets, such as stocks.

Acceptable assets include:

  • Individual stocks
  • Mutual funds
  • Private company interests
  • Restricted stock
  • Cryptocurrency
  • Oil & gas royalty interests

How do you save on taxes?

Here is how it works: Let’s say you were given $100 worth of Apple stock back in the 90s. Today, it’s worth over $100,000. If you planned to sell these shares and donate the proceeds to charity, you could potentially owe around $30,000 in taxes and only have $70,000 to donate to charity.

With a Donor-Advised Fund, you are able to donate your shares directly to the fund, which gives you a $100,000 tax write-off. This could actually save you about $30,000 in taxes while allowing you to donate the full $100,000 directly to charity.

Understanding your options when it comes to donating your stock can reduce your tax bill and increase your gifting power. If you would like to work with a financial planner to walk you through your options, I would love to help you!

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Disclaimer: This blog is for informational purposes only, and should not be considered advice or recommendations. All opinions expressed herein are solely those of Amaral Financial Planning, LLC, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made to another parties’ informational accuracy or completeness. You should consult your financial advisor, tax professional or legal counsel prior to implementation.