🦃 Giving back for the win

Hi All,

It’s Chris again.

Well, we’re officially entering the holiday season. I know I’m looking forward to spending time with my family and friends, eating homemade sweet potato casserole (yes, I’m from the Midwest), watching college football rivalries, and starting to decorate the Christmas tree with my wife.

It’s also a time of year when I get to hear about the causes and organizations my friends, family, and, even, clients support. It’s actually a topic that frequently comes up in conversations with clients, and is one of the most fulfilling aspects of being an advisor.

Not only is it humbling to hear the stories of people that do want to actively give back, but I get to learn about a lot of great causes and organizations.

That’s why I’m excited that Adam Nash, CEO and co-founder of Daffy, is joining this week to speak further about this topic, and specifically about Donor Advised Funds.

If you don’t already know Adam, he has a storied past in tech, especially fintech. He is the former CEO of Wealthfront, former VP of Product at LinkedIn, and has been an active investor in companies like Acorns, Figma, and Gusto.

❓ Why focus on donor-advised funds? Well, I’m a fan of them for a few reasons:

• They are easy to set-up and very low-cost.
• You can make contributions using a variety of assets: stocks, ETFs, crypto, or cash.
• You can disburse funds to charities over a multi-year period.
• You can lower your tax bill with a deduction in the year you fund your DAF.
• You don’t have to deal with the hassle of tracking receipts from your donations.

But, let me pass it over to Adam who can do a much better job of explaining how they work and why they can be beneficial to your tax bill, as well as your community.

👋 Hey everyone, Adam here.

🤝 A donor-advised fund (DAF) is just like a 401K for retirement, or a 529 plan for college, except for charity.

It’s just an industry term for a tax-advantaged financial account dedicated to charity.

They’ve actually been around since the 1930s and were designed to encourage giving by allowing individuals to contribute assets into a charitable account, invest those assets to increase their potential impact, and then donate those assets to any legal US charity.

🤔 Don’t worry if you’ve never heard of a DAF before.

Yes, they’ve been around for a long time, but they’re not as ubiquitously known as other tax-advantaged funds like IRAs or 529s.

Why?

To date, DAFs have been almost exclusively marketed to the ultra-wealthy because the largest providers of DAFs in the country (e.g. Fidelity Charitable, Vanguard Charitable, etc) are supported by investment management companies. And their business model is based on charging a fee on assets under management (AUM). As a result, they focus on large accounts of $100,000 or more.

That’s what we’re hoping to change with Daffy. It’s a brand-new DAF platform with no asset-based fees, built from the ground up for giving, and is available to anyone and everyone that wants to participate.

🙏 They’re both for giving and investing (and can even handle stocks and crypto).

Like your 401K, you simply open a donor-advised fund and begin contributing. Since donor-advised funds are provided by public charities themselves, when you contribute money to them, you receive an immediate tax deduction just as you would donating directly to any nonprofit.

But, a major difference is that your DAF also acts as an investment account. The money you contribute is also invested and has the potential to grow.

Most charities can’t handle donations of complex assets like stocks and crypto, but when you use a donor-advised fund, all of that work is handled by the DAF. As a result, when you have money in a DAF you can donate to any of the more than 1.5 million legal charities operating in the US. It’s better for you and for the charity.

✨ Why do I believe so much in DAFs?

Simply put, it’s a better system for giving. With a DAF at your fingertips, you can automate your contributions, automate your recurring donations to support your favorite organizations, and consolidate all your receipts in one place for tax season.

Last year, Americans donated nearly $485 billion. It’s a lot, and actually a 4% increase from 2020, but my hope is that DAFs can increase that even more.

In fact, Americans could give as much as 32% more by setting an annual goal for giving.

🗓️ But there are also tax advantages, and you can still take action before the year’s over.

Chris and I will break these down:

🎁 The first is about gifting appreciated securities.

If you have any assets, like individual stock positions or crypto, you may have purchased those years ago at a very low cost-basis. For any that you’ve held for longer than a year, you can contribute them from your investment account to a charitable organization.

What are the benefits?

• You will never have to pay any capital gains taxes on the appreciation of your investment.
• You’re eligible to take an income tax deduction on the fair market value of your investment on the date you contribute.
• Because the receiving organization is a 501(c)3 organization (a nonprofit), they don’t have to pay taxes on liquidating your gift. Meaning, the full amount goes to supporting the causes you care about.

🪢 The second benefit is about “bunching” two or more years of contributions.

Most taxpayers claim the standard deduction on their tax returns ($12,950 for single filers and $25,900 for couples filing jointly), and don’t receive any tax benefits for their annual donations.

But, with DAFs you can strategically increase your deductions by “bunching” multiple years of charitable contributions into a single tax year to qualify for itemized deductions.

Once the funds are in your DAF, you can also reinvest them to grow your charitable giving in future years.

Chris also pointed out that this strategy can be beneficial for startup employees. If you participated in a tender offer, exercised NSOs, vested RSUs, or received a bonus this year, this may put you in a higher tax bracket, so “bunching” can help reduce your tax burden.

♾️ Finally, you can also support an unlimited amount of organizations, on your terms.

Chris and I agree, flexibility is one of the best benefits of a DAF. Once you fund your own DAF, you can decide how much you want to disperse on an annual basis, and to which charities you want to support.

If you have 100 shares of Apple stock to donate, for example, figuring out a way to divide them up across multiple organizations is a lot of work. If you contribute them to a DAF, then you can easily give any amount of cash to each organization.

For any funds that you don’t intend to give right away, you can reinvest those funds into your DAF via a variety of investment options, from cash to crypto, to continue growing your money — and have more to give in future years.

I hope that this was a helpful overview of DAFs, and why they’re helpful for the causes you support, but also for yourself and your taxes.

Ok, I’ll pass it back to Chris.

🙏 Thanks, Adam!

And also thanks for offering our readers an extra $25 to your charity of choice by signing up for Daffy with this link.

🦃 From me, and all of us at Secfi, I hope you have a wonderful Thanksgiving.

Things we’re digging:

• 🧠 SPACS are still alive! It didn’t quite last, but all eyes are on who’s next to go public.
• ⛄ As someone from the Midwest, I have to agree it’s impressive.
• 🤯 I hope I’m not the only American watching this crazy World Cup.