Author Topic: This sucks…cashed out company stock.  (Read 2479 times)

iris lily

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This sucks…cashed out company stock.
« on: November 04, 2022, 06:19:24 PM »
Today we got a check for $206,000, entirely unexpected. We had this much in an employee-owned stock where DH used to work, decades ago.  A letter accompanying the check said they were buying out stock from employees who no longer work there.

This came is a complete shock. What a shitty tax event. We are completely unprepared. I suppose if we had been reading the Board of Directors minutes we would know about this, but we didn’t know about it.

We had been selling off bits and pieces of the stock, and this represents around half of what we owned.

Any tips for mitigating the tax hit?


ATtiny85

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Re: This sucks…cashed out company stock.
« Reply #1 on: November 04, 2022, 06:25:25 PM »
Rough coming this late in the year. How much of that is gains?

Got any tax loss harvest potential in other holdings? What are you planning to do with the cash?

reeshau

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Re: This sucks…cashed out company stock.
« Reply #2 on: November 04, 2022, 06:35:38 PM »
Harvest capital losses.  Supercharge your 401k contributions to hit the max.  Pay next year's property tax early.

Would you be interested in charitable contributions of any significant size?

Do you have any significant medical procedures you have been putting off?

iris lily

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Re: This sucks…cashed out company stock.
« Reply #3 on: November 05, 2022, 07:46:22 AM »
Harvest capital losses.  Supercharge your 401k contributions to hit the max.  Pay next year's property tax early.

Would you be interested in charitable contributions of any significant size?

Do you have any significant medical procedures you have been putting off?

To address a couple questions above:

We are too old for 401k. Our property tax is $1200 annually, very low although it will go up due to the major renovations we have been doing. Traditionally we file short form, standard deduction anyway, but we may have to change that this year.

DH plans to consult with our tax guy on Monday. The hit is huge because cost of stock was $.76 per share and it’s value is up to $19.00.

DH will be talking with our investment guys to check on capital losses. There are probably some but we are not aware of anything major.

No medical procedures coming up.

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.

This is a nice windfall for The United States and its taxpayers, so ya’ll are welcome!

But seriously, thanks for brainstorming. It helps the pain just to talk it out.
« Last Edit: November 05, 2022, 07:49:20 AM by iris lily »

GilesMM

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Re: This sucks…cashed out company stock.
« Reply #4 on: November 05, 2022, 07:55:34 AM »
...

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.
...

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?

iris lily

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Re: This sucks…cashed out company stock.
« Reply #5 on: November 05, 2022, 08:19:59 AM »
...

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.
...

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?

dandarc

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Re: This sucks…cashed out company stock.
« Reply #6 on: November 05, 2022, 08:36:09 AM »
Yeah - whatever you put in there is deductible the year your contribute. Then you can make recommendations for grants to qualified charities. Actually pretty much perfect for your highest income years if you intend to give a substantial amount away but don't want to do it all at once.

I think the limit on deducting charitable donations made in cash is 50% of taxable income each year, but maybe one of the actual tax people in here will come in.

dandarc

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Re: This sucks…cashed out company stock.
« Reply #7 on: November 05, 2022, 08:38:00 AM »
Functions basically like a small scale charitable foundation - Collins has a piece "how to give like a billionaire" that walks you through it in his trade mark easy to understand way.

iris lily

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Re: This sucks…cashed out company stock.
« Reply #8 on: November 05, 2022, 09:16:53 AM »
Damn you guys, I am excited about this idea!!! I’m going to delve into it and hold DH‘s feet to the fire in talking to our tax guy on Monday.

I have been wanting a set amount of money to give away every year. We don’t have that set up now and every time I want to give 500 here 1000 here, I have to wrangle with DH about it. If we know we have $10,000 every year to disburse, that amount is right for us and also, I don’t have to engage in arguments about it with DH.

dandarc

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Re: This sucks…cashed out company stock.
« Reply #9 on: November 05, 2022, 09:25:19 AM »
Looks like the limit might be 60% of AGI actually. Also if you can't deduct all of the contribution due to the limit you can carry forward to future years. So this windfall increases AGI obviously but also gives you a big pile of dough you could donate to off-set some or all of that depending on the rest of your tax situation.

You would need to itemize to deduct a large charitable gift, so I guess the "to the extent total itemized deductions exceed the standard deduction" applies, but usually not hard to find quite a few thousands of dollars in other itemized deductions depending on your situation.

Dicey

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Re: This sucks…cashed out company stock.
« Reply #10 on: November 05, 2022, 09:38:17 AM »
Damn you guys, I am excited about this idea!!! I’m going to delve into it and hold DH‘s feet to the fire in talking to our tax guy on Monday.

I have been wanting a set amount of money to give away every year. We don’t have that set up now and every time I want to give 500 here 1000 here, I have to wrangle with DH about it. If we know we have $10,000 every year to disburse, that amount is right for us and also, I don’t have to engage in arguments about it with DH.
DH's family did not have a tradition of charitable giving, so he struggled with this a bit when we first got married. When my parents died, I received a small inheritance. Based on what I learned here, I opened a DAF at Fidelity and it has been an awesome experience. The money has doubled over time, and I've been able to give away a lot of it. I know my parents would be pleased.

An important thing to know is these accounts are irrevocable. You control where it goes completely, but you can never get it back. Be sure you won't ever need any of it.

iris lily

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Re: This sucks…cashed out company stock.
« Reply #11 on: November 06, 2022, 06:12:52 AM »
Looks like the limit might be 60% of AGI actually. Also if you can't deduct all of the contribution due to the limit you can carry forward to future years. So this windfall increases AGI obviously but also gives you a big pile of dough you could donate to off-set some or all of that depending on the rest of your tax situation.

You would need to itemize to deduct a large charitable gift, so I guess the "to the extent total itemized deductions exceed the standard deduction" applies, but usually not hard to find quite a few thousands of dollars in other itemized deductions depending on your situation.


The standard deductions are huge for us. They’re $12,000 per person, right?. There’s no way we can come up with that kind of money And non-charitable things.
This is the core  I have to figure out with our tax guy. I never know how much is our AGI, all of our income is non-earned.  I guess I could pull out my income tax return to see, but I don’t know where a copy is. DH handles that. It is not at all easy for us to find big deductions.
« Last Edit: November 06, 2022, 06:19:22 AM by iris lily »

GilesMM

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Re: This sucks…cashed out company stock.
« Reply #12 on: November 06, 2022, 07:22:19 AM »
Looks like the limit might be 60% of AGI actually. Also if you can't deduct all of the contribution due to the limit you can carry forward to future years. So this windfall increases AGI obviously but also gives you a big pile of dough you could donate to off-set some or all of that depending on the rest of your tax situation.

You would need to itemize to deduct a large charitable gift, so I guess the "to the extent total itemized deductions exceed the standard deduction" applies, but usually not hard to find quite a few thousands of dollars in other itemized deductions depending on your situation.


The standard deductions are huge for us. They’re $12,000 per person, right?. There’s no way we can come up with that kind of money And non-charitable things.
This is the core  I have to figure out with our tax guy. I never know how much is our AGI, all of our income is non-earned.  I guess I could pull out my income tax return to see, but I don’t know where a copy is. DH handles that. It is not at all easy for us to find big deductions.

That is kind of the point - if you are (or are about to be) retired and mortgage free, your charitable donations the rest of your life may not rise above $12,000/per person/per year, thus you get no tax benefit (deduction) for your donation.  By donating a much larger lump sum (into a DAF), say, $100,000, you would still get no deduction on the first $24,000 (as a couple), but you would get the deduction on the remaining $76,000 in the year you made a large transfer to a DAF.

BTW, as you would have read elsewhere by now, the optimal use of a DAF is to transfer appreciated stocks/funds which have large cap gains and thus avoid taking the cap gain hit yourself. If you had transferred the stock in question to a DAF last year, before it was sold without your consent, you would owe zero cap gains tax.  Since it is now sold, transferring some of all of it will at least give you a deduction for the donation and thus offset some of the tax you owe on the gain and sale.

seattlecyclone

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Re: This sucks…cashed out company stock.
« Reply #13 on: November 06, 2022, 12:04:36 PM »
Looks like the limit might be 60% of AGI actually. Also if you can't deduct all of the contribution due to the limit you can carry forward to future years. So this windfall increases AGI obviously but also gives you a big pile of dough you could donate to off-set some or all of that depending on the rest of your tax situation.

My understanding of the charitable deduction limits is this:
1) If all cash, the limit is 60% of AGI.
2) You can donate appreciated stock (deducting the current market value) up to 30% of AGI.
3) If you donate some stock, the total deduction between cash and stock is limited to 50% of AGI.

Any amount donated in excess of these limits can be carried forward to the next year.


The standard deductions are huge for us. They’re $12,000 per person, right?. There’s no way we can come up with that kind of money And non-charitable things.

Standard deduction is $12,950 per person plus $1,400 if you're over 65. The main benefit of the donor advised fund is it lets you bunch up several years of charitable giving into one tax deduction. In this example we're talking about you'd give $100k to the DAF, deduct the whole amount this year, and then distribute $10k/year out of that to the charities you like until the money is gone (and it can be invested while it's in the DAF so it may last quite a bit longer than ten years).

Besides charity the other likely itemized deduction you'd qualify for would be state and local tax, limited to $10,000. Even if you hit that limit the first ~$16k of charitable donations would still be "wasted" because it comes in under the standard deduction, but every dollar donated above there would reduce your taxable income.

This may also be a good time to consider a Roth conversion. You have this big long-term gain pushing your AGI up, but long-term gains are taxed at relatively low rates. You get a bigger bang for your buck from itemized deductions if those count against regular income instead of capital gains income.

clifp

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Re: This sucks…cashed out company stock.
« Reply #14 on: November 06, 2022, 01:35:10 PM »
Damn you guys, I am excited about this idea!!! I’m going to delve into it and hold DH‘s feet to the fire in talking to our tax guy on Monday.

I have been wanting a set amount of money to give away every year. We don’t have that set up now and every time I want to give 500 here 1000 here, I have to wrangle with DH about it. If we know we have $10,000 every year to disburse, that amount is right for us and also, I don’t have to engage in arguments about it with DH.

I set up a donor-advised fund when I had a similar windfall about 5 years.  It has been great.  It takes a bit of discipline to ignore the NPR pledge drives, contribute $5 to march of dimes, etc. at the grocery market it.  However, you don't have to scramble at the end of the year to get all of your charitable giving .  I use Schwab it is very easy to use, I've heard similar good things about Fidelity, not sure about Vanguard.

One of the nicest things is you can give anonymously which is fantastic for giving to organizations, you only want to give to once, and not get on their mailing list for more donations for the next decade.

There are strict limitation of the total amount of chartiable deductions you can take, so make sure husband asks tax guy about them.

MustacheAndaHalf

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Re: This sucks…cashed out company stock.
« Reply #15 on: November 06, 2022, 05:37:24 PM »
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?
I would avoid Vanguard Charitable, and favor Schwab Charitable.  All of them charge 0.6% for $100k, but as your money flows out, the fees differ.

Vanguard charges $250/year for balances under $25,000.  Fidelity imposes a minimum $100/yr fee, beating Vanguard, but Schwab Charitable claims no minimum fee (meaning 0.6% all the way down).

With Schwab or Fidelity you can make smaller $50 grants to charities, while Vanguard imposes a $500 minimum.  If you decide to donate to your DAF again in the future, Vanguard imposes a $5,000 minimum while competitors impose no minimum.  The worst of the three is clearly Vanguard once you start comparing.

https://www.vanguardcharitable.org/giving-with-vc/fees-and-minimums
https://www.fidelitycharitable.org/giving-account/what-it-costs.html
https://www.schwabcharitable.org/features/fees-and-minimums
« Last Edit: November 06, 2022, 05:41:11 PM by MustacheAndaHalf »

seattlecyclone

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Re: This sucks…cashed out company stock.
« Reply #16 on: November 06, 2022, 07:11:15 PM »
On the other hand if your investments are in Vanguard you can transfer shares to your Vanguard DAF without any paperwork or phone calls. That makes all the difference for me. And at least with our charity budget if we were going to be donating in $50 increments we'd be donating to literally hundreds of charities. I'd rather make more impactful donations to a relatively smaller number of charities, so the $500 minimum hasn't been an issue for us, but I can totally see how folks just getting started with giving might see things differently.

iris lily

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Re: This sucks…cashed out company stock.
« Reply #17 on: November 06, 2022, 07:29:22 PM »
On the other hand if your investments are in Vanguard you can transfer shares to your Vanguard DAF without any paperwork or phone calls. That makes all the difference for me. And at least with our charity budget if we were going to be donating in $50 increments we'd be donating to literally hundreds of charities. I'd rather make more impactful donations to a relatively smaller number of charities, so the $500 minimum hasn't been an issue for us, but I can totally see how folks just getting started with giving might see things differently.
Yes, I am already in Vanguard. I suppose it’s possible I might move some of my investment money over to the charitable side. Mainly, I want to deal with this big unwelcome unexpected windfall though.

Last night when I read up on the Vanguard rules, I did see that $250 charge for the account when it is under $25,000. I DO perceive this as a ‘ten years and done’ action, so that fee will be charged to us for a couple of years. That is too bad.

Thanks mustacheandanalf, I did not get to the part about how much minimum disbursements must be and I did wonder about it. But I do think $500 is reasonable because that is the minimum We would normally give for donations of size. We give smaller amounts too, and we could continue to do that I just writing a check out our personal account.

« Last Edit: November 11, 2022, 08:26:23 AM by iris lily »

MustacheAndaHalf

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Re: This sucks…cashed out company stock.
« Reply #18 on: November 07, 2022, 08:04:27 AM »
On the other hand if your investments are in Vanguard you can transfer shares to your Vanguard DAF without any paperwork or phone calls. That makes all the difference for me. And at least with our charity budget if we were going to be donating in $50 increments we'd be donating to literally hundreds of charities. I'd rather make more impactful donations to a relatively smaller number of charities, so the $500 minimum hasn't been an issue for us, but I can totally see how folks just getting started with giving might see things differently.
That's a bit of an exaggeration, claiming every donation must be $50 to hundreds of charities.  My donations have ranged from thousands down to $250 and $100.  To me, a company that charges higher fees ($250 below $25k) and offers fewer choices doesn't seem like a good pick.  And Vanguard seems to have forgotten the days when it strove to be the low cost leader, which is another story.
 
In 2021 I transferred ETF shares from both Vanguard and Schwab into my Fidelity Charitable account without paperwork or phone calls.  I even sent cash from a bank account, so I can vouch for the process being smooth from multiple institutions.

As an added bonus, Fidelity Charitible offers a total stock market investment option that charges a 0.015% expense ratio, which is lower than anything I've seen at Vanguard.

seattlecyclone

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Re: This sucks…cashed out company stock.
« Reply #19 on: November 07, 2022, 10:29:50 AM »
That's a bit of an exaggeration, claiming every donation must be $50 to hundreds of charities.

I guess my point was more that if you have a higher charity budget (say, ≥$10k/year), you're either going to be making hundreds of these $50-100 donations, or else those smaller donations are going to be a relatively small piece of the puzzle and it isn't a make-or-break thing if your DAF should support it. More choices and lower fees are a nice differentiator all else equal, I agree.

Quote
In 2021 I transferred ETF shares from both Vanguard and Schwab into my Fidelity Charitable account without paperwork or phone calls. I even sent cash from a bank account, so I can vouch for the process being smooth from multiple institutions.

Nice to hear. My experience transferring stock between institutions in the past is that it's always been a pretty painful process, and I was pleased that the Vanguard brokerage -> DAF transfer was just a few clicks on the website. ACH cash transfers always tend to be pretty easy.

MustacheAndaHalf

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Re: This sucks…cashed out company stock.
« Reply #20 on: November 09, 2022, 04:45:20 AM »
That's a bit of an exaggeration, claiming every donation must be $50 to hundreds of charities.

I guess my point was more that if you have a higher charity budget (say, ≥$10k/year), you're either going to be making hundreds of these $50-100 donations, or else those smaller donations are going to be a relatively small piece of the puzzle and it isn't a make-or-break thing if your DAF should support it. More choices and lower fees are a nice differentiator all else equal, I agree.
I did extremely well investing in 2021, and donated six figures to my DAF.  This year I've granted >$10k to charities.

Maybe others do it differently, but I give smaller amounts to some charities, and much more to others.  I sent larger donations to a couple charities helping Ukraine.  To avoid fraud, I did some research on Charity Navigator.  I made a much smaller donation to Charity Navigator, which I want to keep in business but isn't my focus.  That's what I meant by donating ten thousand to some charities and $250 to others.  I significantly vary the amount of my donations.
« Last Edit: November 09, 2022, 04:47:21 AM by MustacheAndaHalf »

Dicey

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Re: This sucks…cashed out company stock.
« Reply #21 on: November 09, 2022, 10:03:33 AM »
That's a bit of an exaggeration, claiming every donation must be $50 to hundreds of charities.

I guess my point was more that if you have a higher charity budget (say, ≥$10k/year), you're either going to be making hundreds of these $50-100 donations, or else those smaller donations are going to be a relatively small piece of the puzzle and it isn't a make-or-break thing if your DAF should support it. More choices and lower fees are a nice differentiator all else equal, I agree.
I did extremely well investing in 2021, and donated six figures to my DAF.  This year I've granted >$10k to charities.

Maybe others do it differently, but I give smaller amounts to some charities, and much more to others.  I sent larger donations to a couple charities helping Ukraine.  To avoid fraud, I did some research on Charity Navigator.  I made a much smaller donation to Charity Navigator, which I want to keep in business but isn't my focus.  That's what I meant by donating ten thousand to some charities and $250 to others.  I significantly vary the amount of my donations.
Another nice thing is they show you exactly where you have directed your donations. If you're concerned about the overall hierarchy of your giving over time, it's a fantastic tool.

iris lily

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Re: This sucks…cashed out company stock.
« Reply #22 on: November 10, 2022, 12:48:46 PM »
I haven’t come back to report on what we ended up doing because DH is hospitalized with emergency appendectomy and this is been going on  for days now.

When he gets back home we will attack this.

One of our financial guys said I should be giving gifts out of my IRA Because that is direct to the charitable organization with no taxes involved. My problem  with this methodology is that it is*MY*funds going to our charitable picks, not joint household funds going there. Until I can get DH
To agree to give an equal amount from*HIS*IRA funds, that is a a no deal.
« Last Edit: November 11, 2022, 08:27:07 AM by iris lily »

Poundwise

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Re: This sucks…cashed out company stock.
« Reply #23 on: November 10, 2022, 05:32:40 PM »
I hope your DH makes a full and speedy recovery!

Just for another perspective, I had a bad experience with a DAF-- TIAA-CREF closed down their DAF and moved all their funds to the "Renaissance Charitable Foundation".  After struggling with RCF to get my donations made in a timely fashion (a request to make a donation was not fulfilled for almost a year, after many angry emails), I found that there really seems to be no requirement that DAFs make the donations the way you direct, nor that they have to do so within a reasonable time frame.

https://www.investopedia.com/articles/managing-wealth/080216/donoradvised-funds-benefits-and-drawbacks.asp

seattlecyclone

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Re: This sucks…cashed out company stock.
« Reply #24 on: November 10, 2022, 05:55:40 PM »
I hope your DH makes a full and speedy recovery!

Just for another perspective, I had a bad experience with a DAF-- TIAA-CREF closed down their DAF and moved all their funds to the "Renaissance Charitable Foundation".  After struggling with RCF to get my donations made in a timely fashion (a request to make a donation was not fulfilled for almost a year, after many angry emails), I found that there really seems to be no requirement that DAFs make the donations the way you direct, nor that they have to do so within a reasonable time frame.

https://www.investopedia.com/articles/managing-wealth/080216/donoradvised-funds-benefits-and-drawbacks.asp

Yep, that's an important point! Donor Advised Funds are really just that: charitable funds that solicit advice from donors. Once you put money in a DAF it isn't yours anymore. It belongs to the DAF. Many DAFs will act on donors' advice 100% of the time in order to secure their trust and future donations, but that is absolutely not required.

Poundwise

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Re: This sucks…cashed out company stock.
« Reply #25 on: November 10, 2022, 06:35:19 PM »
I hope your DH makes a full and speedy recovery!

Just for another perspective, I had a bad experience with a DAF-- TIAA-CREF closed down their DAF and moved all their funds to the "Renaissance Charitable Foundation".  After struggling with RCF to get my donations made in a timely fashion (a request to make a donation was not fulfilled for almost a year, after many angry emails), I found that there really seems to be no requirement that DAFs make the donations the way you direct, nor that they have to do so within a reasonable time frame.

https://www.investopedia.com/articles/managing-wealth/080216/donoradvised-funds-benefits-and-drawbacks.asp

Yep, that's an important point! Donor Advised Funds are really just that: charitable funds that solicit advice from donors. Once you put money in a DAF it isn't yours anymore. It belongs to the DAF. Many DAFs will act on donors' advice 100% of the time in order to secure their trust and future donations, but that is absolutely not required.

If you open a DAF, my advice is to reach out to a random sample of the charity recipients to make sure that they have received the donation! I happened to know people working for one of the charities I gave to, and it was embarrassing and frankly enraging to think that I had given them a generous gift, but to find out several months after I had advised the "donation", that it had never arrived.  Here's an article... https://www.vox.com/recode/2019/7/2/18691693/silicon-valley-donor-advised-funds-fidelity-charitable-lawsuit

clifp

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Re: This sucks…cashed out company stock.
« Reply #26 on: November 10, 2022, 07:08:04 PM »
I hope your DH makes a full and speedy recovery!

Just for another perspective, I had a bad experience with a DAF-- TIAA-CREF closed down their DAF and moved all their funds to the "Renaissance Charitable Foundation".  After struggling with RCF to get my donations made in a timely fashion (a request to make a donation was not fulfilled for almost a year, after many angry emails), I found that there really seems to be no requirement that DAFs make the donations the way you direct, nor that they have to do so within a reasonable time frame.

https://www.investopedia.com/articles/managing-wealth/080216/donoradvised-funds-benefits-and-drawbacks.asp




Yep, that's an important point! Donor Advised Funds are really just that: charitable funds that solicit advice from donors. Once you put money in a DAF it isn't yours anymore. It belongs to the DAF. Many DAFs will act on donors' advice 100% of the time in order to secure their trust and future donations, but that is absolutely not required.

If you open a DAF, my advice is to reach out to a random sample of charity recipients to make sure that they have received the donation! I happened to know people working for one of the charities I gave to, and it was embarrassing and frankly enraging to think that I had given them a generous gift, but to find out several months after I had advised the "donation", that it had never arrived.  Here's an article... https://www.vox.com/recode/2019/7/2/18691693/silicon-valley-donor-advised-funds-fidelity-charitable-lawsuit

Vox annoys the shit out of me many times.   Pretty obviously there is a world of difference between donating $100 million, and 10% of company stock and the $10,000 - $100,000 which is everyone else on the thread is talking about. In fact, it is literally 1000 times different.  At $100 million you set up your own foundation so you can have control over when the foundation sells the stock. Hire a manager or two, including your niece who needs a part-time job.

While I'm sorry you had trouble with your TIAA-CREF DAF, you are the exception to be sure.

I can state that of 70 odd donations I've made via Schwab DAF over the last 7 years, 100%of those who shared my address with me got back to me with a thank you letter. So no need to randomly ask.  The handful, I've donated to anonymously never contact me. That is great I didn't want to hear from them. The only issue I had was trying to donate to the White Helmets in Syria. It took a month or two to figure out how to do so, but they were literally in heavily sanctioned country in war zone.


Dicey

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Re: This sucks…cashed out company stock.
« Reply #27 on: November 11, 2022, 05:08:55 AM »
Same for me as far as acknowledgements go. Several of my regulars get my donations electronically, so they happen super fast. I use Fidelity. One thing I hate is how they cheerlead about how much "they" give. "Fuck you, it's not your money", my brain says, but it actually is.

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Re: This sucks…cashed out company stock.
« Reply #28 on: November 11, 2022, 06:42:29 AM »
... it was embarrassing and frankly enraging to think that I had given them a generous gift, but to find out several months after I had advised the "donation", that it had never arrived.  Here's an article... https://www.vox.com/recode/2019/7/2/18691693/silicon-valley-donor-advised-funds-fidelity-charitable-lawsuit
The focus of that article are a couple who donated 10% of a company's stock to Fidelity Charitable, who sold the stock suddenly and impacted the stock price.  That lawsuit has nothing to do with people not receiving donations - and Fidelity won that lawsuit:
https://news.bloombergtax.com/daily-tax-report/fidelity-wins-donor-advised-fund-breach-of-promise-case-but-questions-remain

SeattleCPA

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Re: This sucks…cashed out company stock.
« Reply #29 on: November 11, 2022, 07:29:20 AM »
...

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.
...

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.
« Last Edit: November 11, 2022, 07:32:46 AM by SeattleCPA »

GilesMM

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Re: This sucks…cashed out company stock.
« Reply #30 on: November 11, 2022, 08:18:45 AM »

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.

Your argument seems to be that if one were not donating to charity, one would have more in the end by not giving away $100,000 up front?  That's true.  But if donating to charity, maxing the donation amount will lift one above the min deduction and deliver tax savings, assuming tax brackets and personal income are unchanged over time.

iris lily

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Re: This sucks…cashed out company stock.
« Reply #31 on: November 11, 2022, 08:25:04 AM »
I hope your DH makes a full and speedy recovery!

Just for another perspective, I had a bad experience with a DAF-- TIAA-CREF closed down their DAF and moved all their funds to the "Renaissance Charitable Foundation".  After struggling with RCF to get my donations made in a timely fashion (a request to make a donation was not fulfilled for almost a year, after many angry emails), I found that there really seems to be no requirement that DAFs make the donations the way you direct, nor that they have to do so within a reasonable time frame.

https://www.investopedia.com/articles/managing-wealth/080216/donoradvised-funds-benefits-and-drawbacks.asp

Yep, that's an important point! Donor Advised Funds are really just that: charitable funds that solicit advice from donors. Once you put money in a DAF it isn't yours anymore. It belongs to the DAF. Many DAFs will act on donors' advice 100% of the time in order to secure their trust and future donations, but that is absolutely not required.

That is true, I was part of an of an organization that was a recipient of gifts from the community DAF, and for some years it was difficult get the annual gift that we were supposed to get. Then the Director retired and a new person took over, and it was an easy process.
« Last Edit: November 11, 2022, 08:29:11 AM by iris lily »

SeattleCPA

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Re: This sucks…cashed out company stock.
« Reply #32 on: November 11, 2022, 08:33:17 AM »

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.

Your argument seems to be that if one were not donating to charity, one would have more in the end by not giving away $100,000 up front?  That's true.  But if donating to charity, maxing the donation amount will lift one above the min deduction and deliver tax savings, assuming tax brackets and personal income are unchanged over time.

No, sorry, that is not point I'm making. And actually I'm trying to make two points.

First, there's a time value of money element here if you give $100K now rather than $10K a year for next ten years.

Second, using a DAF to shelter long-term capital gains income isn't as good as using a DAF to shelter ordinary income.

And so my question is this: In this situation looking just at federal taxes is a DAF really that good an idea?

And I kind of doubt it.

GilesMM

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Re: This sucks…cashed out company stock.
« Reply #33 on: November 11, 2022, 09:18:28 AM »


No, sorry, that is not point I'm making. And actually I'm trying to make two points.

First, there's a time value of money element here if you give $100K now rather than $10K a year for next ten years.

Second, using a DAF to shelter long-term capital gains income isn't as good as using a DAF to shelter ordinary income.

And so my question is this: In this situation looking just at federal taxes is a DAF really that good an idea?

And I kind of doubt it.

What about the time value of money?  You transfer the $100K to the DAF and still control how it is invested and earn returns, tax-free, to be distributed to charity. 

Using a DAF to shelter LTGC is not as good as sheltering ordinary income (which the OP doesn't appear to have) but is much better than not sheltering them at all.

SeattleCPA

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Re: This sucks…cashed out company stock.
« Reply #34 on: November 11, 2022, 11:49:07 AM »


No, sorry, that is not point I'm making. And actually I'm trying to make two points.

First, there's a time value of money element here if you give $100K now rather than $10K a year for next ten years.

Second, using a DAF to shelter long-term capital gains income isn't as good as using a DAF to shelter ordinary income.

And so my question is this: In this situation looking just at federal taxes is a DAF really that good an idea?

And I kind of doubt it.

What about the time value of money?  You transfer the $100K to the DAF and still control how it is invested and earn returns, tax-free, to be distributed to charity. 

Using a DAF to shelter LTGC is not as good as sheltering ordinary income (which the OP doesn't appear to have) but is much better than not sheltering them at all.

Here's how I'd calculate the IRR on the decision to do a $100K DAF contribution and then use that for ten years of $10K a year charitable contributions. I.e., we're not talking about someone doing anything other than accelerating their planned giving.

Year 0: Taxpayer gives up $100K in cash... saves $15K in LT capital gains. Net cash effect equals an $85K investment.

Years 1 through 10: Taxpayer avoids a $10K charitable contribution... but also loses a $2400 ordinary income tax saving. Net cash effect equals a $7600 cash inflow.

Note that the above describes the situation I tried (unsuccessfully) to describe two times earlier. Taxpayer pays $100K all at once... taxpayer saves LT capital gains taxes rather than ordinary income taxes.

You can use the =IRR function in Excel to calculate the return on investment that taxpayer earns. And it's not good. Annually, a negative 4%. @iris lily and his/her family lose money with this scenario.

BTW, tweak the assumptions? Add state income taxes? Yup, the IRR will change.

But my twin points: The time value of money (which I'm assuming costs the taxpayer) and the change in marginal tax rates (which surely costs the taxpayer) eat up the benefits the old "rule of thumb" would predict.

dandarc

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Re: This sucks…cashed out company stock.
« Reply #35 on: November 11, 2022, 11:58:36 AM »
@SeattleCPA  - May have been lost to the length of the thread, but the OP is not going over the standard deduction in a typical year - probably not even with a $10,000 charitable deduction. They said they actually have lots of room before itemizing makes sense. So no way at all are they saving 24% in future years by donating $10K to charity in those years. Tax savings from future donations if not stacked up substantially (as is being suggested here) are as low as $0 per what the OP in this thread has said. Saving say $10-12K in taxes this year (gotta clear the standard deduction bar this windfall year too, even if they put the money into the DAF this year, but they can go far past the bar due to the windfall if they choose to do so) is more than $0 saved by waiting and doling it out over time.

So your analysis holds for someone in a completely different situation than the OP - has a much higher ordinary income and also lots of deductions on top of the proposed charitable deduction than what the OP has said here. I.E. what you've written might make sense for someone who is not iris lily

SeattleCPA

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Re: This sucks…cashed out company stock.
« Reply #36 on: November 11, 2022, 12:01:46 PM »
@SeattleCPA  - May have been lost to the length of the thread, but the OP is not going over the standard deduction in a typical year - probably not even with a $10,000 charitable deduction. They said they actually have lots of room before itemizing makes sense. So no way at all are they saving 24% in future years by donating $10K to charity in those years. Tax savings from future donations if not stacked up substantially (as is being suggested here) are as low as $0 per what the OP in this thread has said. Saving say $10-12K in taxes this year (gotta clear the standard deduction bar this windfall year too, even if they put the money into the DAF this year, but they can go far past the bar due to the windfall if they choose to do so) is more than $0 saved by waiting and doling it out over time.

So your analysis holds for someone in a completely different situation than the OP - has a much higher ordinary income and also lots of deductions on top of the proposed charitable deduction than what the OP has said here. I.E. what you've written might make sense for someone who is not iris lily

I missed that. Thanks for pointing out All these little details really do make a difference.

BTW when I recalculate the IRR (so the annual return) someone earns by doing the DAF to show that the first $10K of charity each year does not produce a deduction, I get 2.7% annually.
« Last Edit: November 12, 2022, 07:34:30 AM by SeattleCPA »

Poundwise

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Re: This sucks…cashed out company stock.
« Reply #37 on: November 12, 2022, 06:03:48 PM »
... it was embarrassing and frankly enraging to think that I had given them a generous gift, but to find out several months after I had advised the "donation", that it had never arrived.  Here's an article... https://www.vox.com/recode/2019/7/2/18691693/silicon-valley-donor-advised-funds-fidelity-charitable-lawsuit
The focus of that article are a couple who donated 10% of a company's stock to Fidelity Charitable, who sold the stock suddenly and impacted the stock price.  That lawsuit has nothing to do with people not receiving donations - and Fidelity won that lawsuit:
https://news.bloombergtax.com/daily-tax-report/fidelity-wins-donor-advised-fund-breach-of-promise-case-but-questions-remain

Sorry, I meant to post this article: https://www.philanthropy.com/article/nevada-court-says-donor-advised-funds-can-ignore-donor-advice/?cid2=gen_login_refresh&cid=gen_sign_in

This is not to say that all DAFs are bad. But certainly they're not all good, even if the donor gets the tax deduction.

clifp

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Re: This sucks…cashed out company stock.
« Reply #38 on: November 12, 2022, 11:35:38 PM »
... it was embarrassing and frankly enraging to think that I had given them a generous gift, but to find out several months after I had advised the "donation", that it had never arrived.  Here's an article... https://www.vox.com/recode/2019/7/2/18691693/silicon-valley-donor-advised-funds-fidelity-charitable-lawsuit
The focus of that article are a couple who donated 10% of a company's stock to Fidelity Charitable, who sold the stock suddenly and impacted the stock price.  That lawsuit has nothing to do with people not receiving donations - and Fidelity won that lawsuit:
https://news.bloombergtax.com/daily-tax-report/fidelity-wins-donor-advised-fund-breach-of-promise-case-but-questions-remain


Sorry, I meant to post this article: https://www.philanthropy.com/article/nevada-court-says-donor-advised-funds-can-ignore-donor-advice/?cid2=gen_login_refresh&cid=gen_sign_in

This is not to say that all DAFs are bad. But certainly they're not all good, even if the donor gets the tax deduction.


There is zero evidence that Schwab's, Fidelity's or Vanguard DAF do this.
There are enough people here and on other forums, that we'd have heard about them.

Honestly, the only "bad" thing about DAF, that most of us will experience is that resulted in about a tripling of my charitable giving.  If you were running a Lean FIRE, I guess that could be bad.

tj

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Re: This sucks…cashed out company stock.
« Reply #39 on: November 21, 2022, 07:56:18 PM »
Same for me as far as acknowledgements go. Several of my regulars get my donations electronically, so they happen super fast. I use Fidelity. One thing I hate is how they cheerlead about how much "they" give. "Fuck you, it's not your money", my brain says, but it actually is.

Does it bug you enough to transfer the DAF to Schwab Charitable? ;-)

Dicey

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Re: This sucks…cashed out company stock.
« Reply #40 on: November 22, 2022, 01:23:55 AM »
Same for me as far as acknowledgements go. Several of my regulars get my donations electronically, so they happen super fast. I use Fidelity. One thing I hate is how they cheerlead about how much "they" give. "Fuck you, it's not your money", my brain says, but it actually is.

Does it bug you enough to transfer the DAF to Schwab Charitable? ;-)
Dunno, does Schwab do the same thing? Are they mandated to encourage donors to allocate the funds? I chose Fidelity based on recommendations here and it really is super easy to navigate. Transferring sounds like a PITA.

tj

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Re: This sucks…cashed out company stock.
« Reply #41 on: November 22, 2022, 08:06:15 AM »
Same for me as far as acknowledgements go. Several of my regulars get my donations electronically, so they happen super fast. I use Fidelity. One thing I hate is how they cheerlead about how much "they" give. "Fuck you, it's not your money", my brain says, but it actually is.

Does it bug you enough to transfer the DAF to Schwab Charitable? ;-)
Dunno, does Schwab do the same thing? Are they mandated to encourage donors to allocate the funds? I chose Fidelity based on recommendations here and it really is super easy to navigate. Transferring sounds like a PITA.

I would have to think that they do the same thing, but I have only used Fidelity Charitable myself.

iris lily

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Re: This sucks…cashed out company stock.
« Reply #42 on: November 22, 2022, 12:41:54 PM »
Our tax guy confirmed what several of you told me here, that there’s no way to avoid the giant ass hit coming with this big check. Our losses have been minimal So there’s no real opportunity to offset that. We will just have to bend over and take it.

As for setting up a Donor Advised Fund, it comes back to the usual problem of my household: I have to get DH to agree to it. I don’t want to give my own money only.
« Last Edit: November 22, 2022, 12:43:49 PM by iris lily »