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How much should I put in to a new donor advised fund?

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  • How much should I put in to a new donor advised fund?

    Well, I'm excited and nervous at the same time about finally feeling like I've got enough in the bank to open a Vanguard DAF. I currently donate to charity but not nearly as much as I should. Putting a minimum of 25K into the DAF will encourage me to make larger contributions to the charities I value. Truth be told, I must admit that I also have ulterior motives for finally pulling the trigger on this. I need advice/guidance on what to do.

    This year I unintentionally worked way more than I wanted and made about 120K more. My firefighter husband made about 60K more. The problem is that I paid my first 3 estimated federal taxes based on what I made last year. First world problem here, right? I corresponded with my accountant today who informed me that I will likely owe up to 80K OR MORE in taxes than I've already paid. Seems bizarre to only make 180K more yet spend 80K more on taxes, doesn't it? I'm sure some of you are thinking I should get a new accountant. Maybe so. But I also concede that I have underpaid and will certainly owe more come April. And I live in California, which doesn't help anything.

    So here enters the DAF...it's a win win. I give more to charity and I get a little tax break from it. But how much do I put in? That's where I'm struggling. Let me give more numbers for you numbers people:

    Taxable (combined with my spouse) income this year set to be ~500K (up from 268K last year). I lose the 65K qualified business income deduction that I got last year since our taxable isn't below 329K. I know I could get some QBID if I can get taxable down to 429 but I'm not comfortable putting 70K into the DAF. That's just too big a number for me at this stage in my game and the QBID amount would be small.

    But as my accountant explained it, even if I don't get any QBID, every dollar I give to charity will save me 41 cents in taxes. So if I put 50K in the DAF that would save me 20K in taxes, right? Give away 50K to save 20K? My head starts to spin the more I type.

    I realize no one can tell me what to do as it is a personal decision, but any guidance or advice you fellow WCIers want to give would be appreciated.

    On a final note, my accountant also suggested that since I already have a Vanguard brokerage account, I should donate shares rather than cash to the DAF. That would allow me to save on LTCGs and reinvest at a higher basis. Is that accurate? When I open the DAF do I have to be specific with Vanguard about which shares to move?

    Simple questions. Simple mind.

    Thanks for reading.
    Last edited by Amyolin; 12-24-2021, 03:54 AM.

  • #2
    Originally posted by Amyolin View Post
    Well, I'm excited and nervous at the same time about finally feeling like I've got enough in the bank to open a Vanguard DAF. I currently donate to charity but not nearly as much as I should. Putting a minimum of 25K into the DAF will encourage me to make larger contributions to the charities I value. Truth be told, I must admit that I also have ulterior motives for finally pulling the trigger on this. I need advice/guidance on what to do.

    This year I unintentionally worked way more than I wanted and made about 120K more. My firefighter husband made about 60K more. The problem is that I paid my first 3 estimated federal taxes based on what I made last year. First world problem here, right? I corresponded with my accountant today who informed me that I will likely owe up to 80K OR MORE in taxes than I've already paid. Seems bizarre to only make 180K more yet spend 80K more on taxes, doesn't it? I'm sure some of you are thinking I should get a new accountant. Maybe so. But I also concede that I have underpaid and will certainly owe more come April. And I live in California, which doesn't help anything.

    So here enters the DAF...it's a win win. I give more to charity and I get a little tax break from it. But how much do I put in? That's where I'm struggling. Let me give more numbers for you numbers people:

    Taxable (combined with my spouse) income this year set to be ~500K (up from 268K last year). I lose the 65K qualified business income deduction that I got last year since our taxable isn't below 329K. I know I could get some QBID if I can get taxable down to 429 but I'm not comfortable putting 70K into the DAF. That's just too big a number for me at this stage in my game and the QBID amount would be small.

    But as my accountant explained it, even if I don't get any QBID, every dollar I give to charity will save me 41 cents in taxes. So if I put 50K in the DAF that would save me 20K in taxes, right? Give away 50K to save 20K? My head starts to spin the more I type.

    I realize no one can tell me what to do as it is a personal decision, but any guidance or advice you fellow WCIers want to give would be appreciated.

    On a final note, my accountant also suggested that since I already have a Vanguard brokerage account, I should donate shares rather than cash to the DAF. That would allow me to save on LTCGs and reinvest at a higher basis. Is that accurate? When I open the DAF do I have to be specific with Vanguard about which shares to move?

    Simple questions. Simple mind.

    Thanks for reading.
    I would contribute as much in as you think you can possibly handle and then add 50%.

    The amount you put in that gets you over the hump of the standard deduction is essentially "wasted," as in, you don't get a deduction for it. If you already have itemized deductions that equal ~$25,000 thanks to a huge mortgage or something, then this is a non-issue, but for those of us with paid-off mortgages, the first $15,000 in itemized deductions are worthless (since the SALT deductions are limited to $10k combined).

    Get yourself some of that QBI deduction. You made an extra $180k this year. What if you donated half of it?

    Finally, yes, you tell Vanguard which shares to donate. Be sure to have "Specific ID" selected as your cost basis method and donate appreciated shares with the highest percentage gains. This post will walk you through that process: The Best Way to Donate A Hundred Grand.

    You are limited to donating 30% of AGI when donating appreciated assets, but it doesn't sound like you'll be pushing that unless you donate a lot more than you've outlined.

    Thank you for your generous spirit, and Happy Holidays!
    -PoF

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    • #3
      And here is a step-by-step guide to donating Vanguard funds from a brokerage account to a Vanguard Charitable DAF. Let me know if you have any further questions:

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      • #4
        Agree go big, Spread the grants out over a few years, and quit working so much next year.

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        • #5
          I have DAFs at both Vangard and Schwab. If I had a do-over I'd use only Schwab. Schwab allows lower grants and contributions. same fees.

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          • #6
            I just started a DAF at Schwab. I like it so far. Just made my first contribution today. Will take a few days to close it said with markets being closed.

            Comment


            • #7
              Very personal decision, but if you're planning on giving anyway, might as well get the biggest tax breaks for it. It's the financially rational decision. I just wrestled with the same you're wrestling with but I "maxed" my tax benefit for 2021. Note limits to the tax breaks per year are 30% long term capital gains and an additional 20% of cash, although excess amounts of tax deductions can be carried forward to subsequent years.

              I would put on people's radar legislation that is being *considered* with URL below. Prelim versions would effectively "force" payouts from DAFs in 15 years time. I thought about trying to make a DAF account itself financially independent, with an ~ 3% withdrawal rate / year but this legislation has given me some pause from putting large amounts in it (beyond what I would donate in 15 years) until this gets a bit more settled.

              https://www.exponentphilanthropy.org...s-act-ace-act/

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