Yeah, I didn't realize what an enormous difference this made until I ran the numbers.

In your example above, let's say the person purchased those 10 Meta shares for $38 each at the IPO and they're worth $322 each now. That's $3220 in proceeds and a $2840 capital gain.

The taxes on this depend on income level and state of residence, but let's say they're in CA making $300K/year. They'll pay 20% federal capital gains tax + 3.8% net investment tax + 10.3% CA income tax, or $968 in taxes, and they're left with $2252.

On the other hand if they donate the shares to a charity (or DAF), they get a tax deduction for the appreciated amount ($3220), which can be taken against 35% federal income tax + 10.3% CA income tax = $1459.

So in the scenario where they just sell the shares, the proceeds after taking taxes into account are:

  Donor     $2252
  Charity      $0

And in the scenario where they donate the shares, they are:

  Donor     $1459
  Charity   $3220

In other words, for an effective cost to the donor of $793, the charity gets $3220.

To be clear, this is exactly the same for any gift of appreciated stock -- a DAF is not required to donate appreciated stock in-kind and deduct the full (unrealized) price without paying capital gains. But the vast majority of charities are not equipped to accept in-kind stock donations, which a DAF facilitates by taking stock in-kind and cutting the charity a check.

(Also, DAFs allow claiming the deduction during high-income years and deferring distribution to charities over a longer period of time.)

Isn't that double counting? In the first scenario, $2252 is the amount that they get in their bank account post-tax (marginal). In the second scenario, they get $0 in their bank account post-tax (marginal), and there is a deduction but that occurs on the amount donated so they don't really gain $1459 but rather avoided paying those taxes.

Avoiding paying taxes leaves more in your bank account than if you had to pay them, so it's still a gain, isn't it?

Right. If you just sell, you can spend some of the money (that you don't donate).

If you donate to a DAF, it's 100% gone to charity, *someday."

HN needs a way to save comments.

That's what the "favorite" link is for.

To clarify, you click the timestamp on the comment to get to the comment-specific "favorite" link

There is at least one intermediate step: it's not prohibitively expensive to set up a charitable remainder trust. You have more control than with a DAF. But you have a fixed cost to set up the trust and some annual administration and tax compliance costs. It can make sense if you plan to donate more than, say, a million dollars.