Donor advised fund - fund with company stock with ST gains?

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noraz123
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Donor advised fund - fund with company stock with ST gains?

Post by noraz123 »

My company, which is publicly traded, has just agreed to be acquired in an all cash offer. The deal is expected to close this year.

I exercised a good amount of options in Feb (2021). My plan was to sell once I hit my one year holding period and LTCG.

The acquisition now likely means that I will get hit with short term capital gains, as my stock will be bought before end of the year, assuming deal closes.

I am wondering if it makes sense to open a donor advised fund and fund with this company stock.

My wife and I live in California and currently rent, so we don't have mortgage interest to deduct and believe we are limited to $10k SALT deduction.

I had planned to open a DAF once we bought a house and had a mortgage.

Does it make sense to open a daf now?

We do most of our investing with Fidelity. Are they a good choice for a daf?

Anything else we could do to soften the blow of STCG? I don't have tax losses to harvest.
MrJedi
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Joined: Wed May 06, 2020 11:42 am

Re: Donor advised fund - fund with company stock with ST gains?

Post by MrJedi »

You don't get a full market value deduction for short term held shares. This can make a large difference if you itemize deductions. If you take the standard deduction, this doesn't matter to you. Either way, yes you can avoid taking a short term gain this way.

If you have Fidelity taxable account, then the Fidelity DAF is an excellent fit. I utilize both and the integration works well, very pleased with it. I can log into the DAF and select the exact tax lots that I want to give. It takes a few days for money to settle into the DAF, but the shares drop out of my taxable account instantly. I do it during market hours and I can see that the net proceeds of my gift after settlement matches with the share price at the time of day I hit the submit button, so no concerns about market movement between the time you initiate the gift vs. the time the DAF actually receives the gift and liquidates it (can be 1-2 weeks when dealing with a "real" third party). I do this all online, no phone calls or letters needed.
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noraz123
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Joined: Tue Jun 10, 2014 1:23 am
Location: SF Bay Area

Re: Donor advised fund - fund with company stock with ST gains?

Post by noraz123 »

MrJedi wrote: Fri Jul 30, 2021 7:35 am You don't get a full market value deduction for short term held shares. This can make a large difference if you itemize deductions. If you take the standard deduction, this doesn't matter to you. Either way, yes you can avoid taking a short term gain this way.
Thanks. I didn't realize that. Just reading more, and while I'd avoid the gain itself, it seems my deduction would be limited to the cost basis, not the market value.

I think that I'd be better donating shares with ltcg as I would get a much larger deduction. My exercise price was about $5, and acquisition will yield about $30/share.

I also have shares that will hit ltcg next month, presumably before deal closes. If I go with donating to the daf, it seems that would be the better option.
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