How I Saved $30,000 in Taxes (DAF Strategy Explained)

So, a week or two ago, I did a video explaining my biggest buys and sells in my portfolio. And in that video, I described this thing called a DAFF, or a donor advised fund. This account literally saved me tens of thousands of dollars in taxes last year. So, I'm excited to give you more details. Now, just know that I'm not a tax professional and so I definitely suggest that you consult with your tax professional or CPA and I'm just going to share with you the stuff that I'm doing and how it's helped me and saved me a bunch of taxes and also a bunch of pros and cons on this. So, in that video, I lightly highlighted the DAFF and I talked about how it locks in your profits and it gives you a tax loophole. That's super exciting. Let me refresh your memory from that video and then I'll go a little bit deeper. But the reason why I sold was actually a strategic tax move. I bought Palunteer back when it was around $ 20 to $30, then more around $40 to $50. It's since jumped all the way to 200, but more recently it was around $150. So my gains were well over $200. So I want to let you in on a secret of how to realize these gains without paying anything in taxes, especially if this is in a taxable brokerage. Even more than that, you actually get a tax deduction. So, what I did was I added to a donor advised fund using that Palunteer stock. For example, if you have $20,000 in Palunteer, but you only paid $5,000 for it, you'd normally have $15,000 in capital gains that would be taxed. If you instead sell and transfer to a DAFF, you get to write off the full $20,000. And you don't have to pay any capital gains. Once the money is in the DAFF, you can contribute to any charity you'd like. And for me, I use it to tithe at my church and give over and above as well. Also, money inside of a DAFF can be invested and grow tax-free, potentially increasing how much you can give over time. So, I'm going to give you the pros and cons of these accounts and how I use it yearly to not only lock in profits in my taxable accounts without having to pay taxes, even better, I get to write off the full amount and I get to give to charity, which is one of my ultimate goals with the money I've been blessed with. I love to use this as a way to tithe to my church, but also, as you'll see later, this can be even bigger than what you had imagined. So, you could just take cash from your bank and add it to the DAFF. If you put $1,000 in, you'll get to write off $1,000 as a tax deduction. Awesome. But that isn't much different than just giving the $1,000 straight to a charity. You'd get a $1,000 deduction there, too. The magic is here. So, you have a brokerage account, right? A taxable brokerage. Let's say you bought Apple stock for $100 and now 5 years later, it's at $300 per share. Your 10,000 that you originally invested turned into $30,000. If you go to sell that, you'd have to pay taxes on the gain of $20,000. Now, most people, they just go and they sell that stock. They have to pay taxes on the $20,000, and then they might give a portion or all of that to charity. And that's awesome. But if you're already planning on giving money to charity, you might as well do it the way that the wealthy actually do it. So, instead of selling that $30,000 Apple and then paying taxes and then giving it to charity, you could just sell that full position to the DAFF. and you get to give $30,000, meaning you get to give that full amount and get to write off that full amount of $30,000 and pay 0 in taxes for that gain. And that's not it either. Let's just say that you really like Apple and that you still want to hold on to it long term. Well, you just buy back into Apple with your paycheck or just any extra money that you have. Except for now, you're buying in Apple at a much higher price. you're buying in at what it's worth today, which is, let's call it $300 from the example. That means that your cost basis is way higher, which also means that down the road, whenever you go to sell that stock, now you have a much higher cost basis, meaning you're going to have a smaller profit, which means that you're going to have very little to no taxes there as well. So you can just keep rinse and repeating like this year after year and very much just cut your taxes down to crazy small numbers. This is a very powerful tool and a way to use your taxable account to basically get profits without even having to pay taxes long term. So now you understand why this is so exciting. I'm going to give you some more details, some more pros and some cons because of course it's not all sunshine and rainbows. There are some things that you need to think about. And then I'm also going to show you step by step exactly how to open one of these. So first the pros and the first one is obviously the tax deduction that you get. You get an immediate tax deduction in the year that you contribute even if you don't actually take that money and give it to a charity that year. So if you put $10,000 into the DAFF this year and you don't end up giving it to a charity till five years from now, you still get to write off the taxes right now and this year. This is huge for high income years, selling a business, big capital gains events, things like that. And talking about capital gains, number two is that you get to avoid capital gains entirely. Like I said from before, you can donate stocks and ETFs and even crypto into this account and you get to avoid the capital gains tax, but you get to write off the entire value, the entire amount that it's worth. Number three is that you can use a bunching strategy, which is very much solid tax optimization. DAFFS lets you stack multiple years of donations into one year. This matters because it helps you itemize deductions instead of taking standard deduction. Then you can give gradually over time. Number four is a big one. There's tax-free growth within the account. And this is specifically how I'm planning to use it. This isn't just something where you put the cash in or you put the stock into that and now it's worth that amount and that's how much is going to be there 10 years from now. You get to invest it and put it into funds that are investing into the stock market. So it gets to even grow even further and compound growth so that you can give at a very solid amount later on in life. Number five, another huge pro here is that you can gift more than just cash or more than just stocks. DAFFs can accept private business interests like pre-sale, real estate, crypto, restricted stock, partnership interest. This matters because if it's structured before a sale, you could legally avoid massive taxes like specifically selling a business and having huge capital gains there. Now, this is how the ultra wealthy are donating to DAFFs. Now, let's talk about a couple of the cons or at least just some things that you should be aware of. The first one, the biggest one to understand is that the money is irrevocable. Once you contribute to the DAFF, you can't get it back. It's technically not even yours anymore. It's technically property of the DAFF, but you get to tell the DAFF where you're going to contribute that money. Number two though, you don't have complete complete control. So definitely do research before you start or before you open a DAFF. That's why I like bigger organizations, something like Fidelity or Charles Schwab or Vanguard rather than some small one because the bigger ones definitely have a little bit more capability. And I personally haven't had a problem giving through the DAFF, but I've heard of smaller ones having issues. Number three, there are AGI limits, adjusted gross income. Typical limits are something like cash up to about 60% of your AGI and appreciated assets up to about 30% of your AGI. any excess that you give carries forward up to five years. Now, there are other rules and stipulations, none that are too big, but probably some that I left out here, and which is why I definitely suggest that you consult with a tax professional or CPA or somebody who understands this and understands your numbers specifically and specifically in the state that you're in. If though you're watching this and you know something that maybe I left out on accident, go ahead and comment that down below so that other people can learn. So in total when a DAFF makes the most sense would be like if you have a high income year, you sold stock or business or real estate with big gains, you want to donate some appreciating assets, you plan to give away more than $10,000 annually, and or you want to build a long-term charitable strategy, which for me, this is really big on my heart. I really want to be able to use the money that I've been blessed with to not only tithe like normal, like I do each and every month, but also give over and above that and be able to help out in ways that are much bigger than I can even think of right now. So, I love this idea of adding to this DAFF, letting it grow, compound interest, and grow at 10, 12, 15% and then eventually be able to take that percentage gain and be able to bless those in ways that I never even imagined possible. So, let me show you step by step how to open one. If you'd like help getting one going or even help just going over your portfolio and strategy that makes sense for you to build that wealth, reach out for a one-on-one Zoom consultation for private financial coaching. The link is down below to apply and get on my schedule for a Zoom meeting and I can't wait to meet you. So, like I said before, I use So, like I said before, I really like the larger brokerages like Vanguard or Fidelity. I do mine at Charles Schwab. So, I go to open an account here, then just search for it or scroll. And this one's down here on Schwab. It's called the DAFF Giving 360. As you can see here, you can see like what can you do with this DAFF account? You can also see that there's no cost to opening a DAFF account, which is great, but this is also important. So, what do you need to open the DAFF? You need a US permanent resident address, your social security number, and an employer's name and mailing address if applicable. So from here, then you just click get started and then fill this stuff out just like normal as if you're opening a new bank account or investing account. Super simple stuff. It takes maybe two or three minutes. Very, very easy. And once you get it all done, then eventually it just sits right here in between your other accounts. I just started this this last year and here's what mine's invested in. I elected to go half growth and half foundational in their total market equity index pool. You can pick how conservative or aggressive you'd like to be. Now, this was just a broad overview and I hope this was very helpful. Please put any questions or thoughts down in the comment section down below. Now, this video here I did a couple of weeks ago and it's all the information that I wish I would have known when I started, but over the last 20 years in my investing and financial journey, I learned a lot and I threw it into this video. Or watch this one to keep you going strong and remember to keep investing simplified.