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I would be interested in a few large charitable contributions and have several organizations in mind since we give to them regularly, but it’s not an even exchange. By this I mean I can’t funnel $30,000 to Bulldog rescue rather than to the Internal Revenue .service. I think, anyway. I am always a little vague about how this works.
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How about socking $100,000 into a donor-advised fund at Vanguard in 2022 then doling out $10,000/yr to your favorite charities the next ten years?
I like this idea A LOT. I just ran it by DH.
He doesn’t know about this option. So, to understand, if we put $100,000 into this vehicle at Vanguard, it is entirely sheltered from taxes? The $10,000 I give out next year goes 100% to the charitable organization?
This doesn't really seem like that great a tax planning idea. At least looking just at federal taxes (State taxes may change the calculus.)
Think about what your situation looks like after paying the taxes and making any charitable contribution.
If you just pay the tax, at 15% to 20% long-term capital gains rates, that's $30K to $40K in tax. And you end up probably with $160K to $170K in a (hopefully) really tax efficient stock index fund. That'll be lightly taxed while you work. And probably tax free in retirement.
If you give away half of the windfall, so $100K or whatever, and then pay the long-term capital gains tax on the remaining $100K or whatever, you end up with $80K to $85K in a stock index fund Again, very low tax impact while you work, Probably tax-free when you retire.
But there's a big difference in what you're earning obviously. $4K to $5K in extra annual earnings with the bigger balance at the start? And that amount will hopefully grow over time?
And then the other thing, maybe a minor thing, is that your charitable deduction tax savings reflect your marginal tax rate. It may be that charitable contributions in the future (so 2023, 2024, etc) are worth more because your marginal tax rate will be the ordinary income tax rate rather than the long-term capital gains rate.
E.g., if in 2023 your marginal ordinary income tax rate is 24% and in 2022 your capital gains rate is 15%, your charitable contribution tax savings shrink a lot. That $10,000 charitable deduction may have saved you $1500 in tax in 2022 but cost your $2400 in tax in 2023. That eats away at the attractiveness.
Again, state taxes will scramble the accounting.
P.S. Long-term capital gains tax rates are usually a "good" tax accounting outcome. And smart tax planning usually means trying to make losses and deductions reduce ordinary income and trying to make income and gains lightly-taxed capital gains and qualified business income or qualified dividends.