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Note: this is not tax advice. I’m not a tax professional. Tax situations are complex and vary widely by person. This is meant as a jumping-off point for research and consultation with your CPA.

There are lots of good reasons to donate to charity, but that’s not what this post is about. It’s about underrated mechanisms for doing so.

In particular: donating appreciated property, and using DAFs.

Would you pay $13,000 to give $72,000 to whatever charities you wanted to? If the answer is yes, read on…

Background

People who are financially exposed to early-stage technology investments or cryptoassets often end up making money from just one or two investments that really land, and the rest go to zero (or close to it). And in the cases where they hit, there are tax and charitable opportunities to consider.

The basic principle: if you have an appreciated asset (an angel investment that is now successful; a memecoin you bought that is up 20x; etc.) and you have held it for at least a year, you can donate it to a DAF or public charity and both get a tax deduction for its full value and not pay capital gains tax on it.

Let’s walk through an exampleAgain: not tax advice, every situation is different. I’m also skipping some details for simplicity. And I may get a number slightly off here or there — tax is complicated — CPAs please feel free to correct me!:

Jane’s $WIF

Jane is a Senior Software Engineer (E5) at Facebook in Menlo Park, CA. Her annual income (including stock and bonus) is around $495,000 (inflation, am I right??).

In 2023, Jane’s crypto-obsessed friend told her about the memecoin $WIF. She bought $3,000 of $WIF for $0.08 each. It’s now worth $1.92 per coin, or $72,000.

Even though the dog is still wearing its hat, Jane is done. She’s ready to get out. Here are two paths:

Path 1: Sell it

Jane’s taxable gain is $69k ($72k value - $3k cost basis). On that, she’ll pay:

  • $13.8k of federal capital gains tax (she’s in the 20% long-term capital gains bracket)
  • $2.6k of Net Investment Income Tax (she’s over the threshold for that)
  • $7.8k of California state tax (she’s in the 11.3% bracket)

That’s $24,200 in taxes, so she’s left with $47,800.

Path 2: Donate it

Jane can donate the $WIF to a DAF or public charity (more on how to do this in a second). She’ll get a tax deduction for the full $72k, and not pay any capital gains tax on it.

That $72k tax deduction is a big deal. It will offset a bunch of her existing Facebook salary income, saving her:

  • $26.6k of federal income tax
  • $8.1k of California state tax

That’s $34.7k in saved taxes — the IRS will (effectively) write her a check back for that amount (in the form of a refund on her presumed Facebook tax withholding)! Plus she now has $72k in charitable donations to put to whatever causes she wants.

The difference

If Jane sells, she gets $47,800 cash.

If Jane donates, she gets $34,700 cash (from the tax savings) plus $72,000 in charitable donations to causes she cares about.

The question in front of Jane: would you pay just $13,000 to give $72,000 to whatever charities you wanted to, with no time-sensitivity on actually allocating the funds (more on that in a second)?

I think, for a lot of people, the answer is yes. And I also think most of those people don’t realize that this is even an option, or that the economics are are favorable as they are. (Hence the blog post.)

How to do this & why DAFs

You can get these benefits by donating the assets to any public charity, but not all of them are set up to accept arbitrary cryptoassets (or appreciated privately-held stock, or publicly-traded stock, etc.). Plus: you’d have to immediately make the call of where you want the funds to go, and it would all go there right away.

Instead, I recommend using a Donor-Advised Fund (DAF). DAFs are a really interesting type of vehicle: they let you make a donation today (with the corresponding tax deduction immediately), and then allocate the funds to whatever charities you want later — whether next week, or many years from now!

That means one big gain from a highly-appreciated asset could fuel a chunk of your philanthropy for many years.

Plus, the funds in your DAF can be invested while they sit there. So you can be earning returns on the funds while you wait to allocate them, increasing the amount you can allocate to charity over time.

For crypto, I’ve used two DAF providers, both excellent:

  • CharityVest, which is a great option for donating crypto that is listed on Coinbase, plus they accept many other types of assets
  • Endaoment, which can — amazingly — accept just about any cryptoasset on a major blockchain (plus other assets too!)

There are lots of other DAF providers out there, but those are the two I know and recommend.

It’s dead-simple: you set up a DAF with them (takes 5 minutes), donate the asset, and get a tax receipt. You also need to get a valuation of the asset from a third party when you file your taxes, but the DAF providers or your CPA can help you with that.

You can choose to have the funds invested (Endaoment lets you invest in onchain stablecoin yield, for example, and CharityVest lets you build classic stock/bond index portfolios).

Then, whenever you want, you can go to their sites, pick a charity, and allocate any portion of the funds. Have a friend running a 5K for a charity? Donate some money from your DAF. Want to support a charity doing work in your hometown over time? Send them some money every year rather than all at once.

Other reasons to donate property

If you’re any planning charitable contributions in the first place, you should pretty much always donate appreciated property rather than cash (assuming you have any and have held it for at least a year). Even if it hasn’t appreciated a lot, any appreciation is tax-free, and you get a tax deduction for the full value. That’s simply better than cash.

And if you want to hang on to the asset, you can re-buy it immediately. The wash-sale rules don’t apply to charitable donations.

To give a quick example:

Let’s say you want to donate $10k to charity (either a specific charity or a DAF for future giving). You have $10k in cash in your bank account, and you also have a $8k investment in Amazon that is now worth $10k. You want to keep riding the Amazon wave.

If you donate the cash and keep the Amazon stock, you get a $10k tax deduction. And your Amazon stock’s cost basis is still $8k, so when you eventually sell it, you’ll pay taxes on the final value minus $8k.

Alternatively, you could donate the $10k of Amazon stock and immediately re-buy it in the market with your cash. You’ll end up in the same place ($10k of Amazon stock, no cash, and a $10k tax deduction), but now your cost basis for the stock is $10k — so when you eventually sell it, you’ll pay less in taxes than the prior scenario.

Caveats and bonuses

The numbers are not always as good as in Jane’s situation. She’s a very high earner, and so the tax savings are huge. If you aren’t in a high tax bracket, or you are in a lower income tax state, the savings from making a donation will not be as large. I think in many cases, it is still worthwhile — just not as stark a difference. Run your own numbers!

And, uh, again, for the last time: this is not tax advice. Please do your own research and consult with your CPA. Your situation is not Jane’s situation or my situation, and that may mean some very different conclusions…

Looking for a good charity to donate to?

Shameless plug: I’m a board member of FreeWorld, a nonprofit that trains ex-felons to become truck drivers and places them in trucking jobs. We trained >1,000 “free agents” between 2021 and 2023, and 1,000 more in just 2024 alone.

We’re trying to break generational cycles of poverty and recidivism by giving people true living-wage jobs and economic mobility. It’s an unbelievably effective organization (generating tens of millions of dollars of marginal annual earnings each year for ex-felons getting their second chance), led by an amazing CEO, Jason Wang. Email me if you have any questions about it…

… or donate here (p.s. see that little DAFPay button? That lets you donate from a DAF!).

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