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Trying to decide if/how much I want to donate to a Donor Advised Fund. I've got some appreciated stock and will likely retire in the next year or two, so trying to decide between the DAF vs selling at the 0% capital gains rate. I've already got some funds in a DAF, so I may decide to hold off on adding.

Keep in mind that the capital gains tax bracket does not just count the capital gains. All of your other taxable income, plus your capital gains is the figure is used to determine what rate the capital gains are taxed at. So, in 2021, for someone who is single and takes the standard deduction, and has $50k in ordinary income and another $15k in capital gains, their income would be taxed like this:

$12,550 ordinary income - uses up the standard deduction (total counted - $12,550 ordinary income)
$ 9,950 ordinary income - taxed at 10% (total counted - $22,500 ordinary income)
$27,500 ordinary income - taxed at 12% (total counted - $50,000 ordinary income)
$ 2,950 capital gains - taxed at 0% (total counted - $50,000 ordinary income and $2,950 capital gains income)
$12,050 capital gains - taxed at 15% (total counted - $50,000 ordinary income and $15,000 capital gains income)

So even though this taxpayer's capital gains are well below the $40,400 capital gains 0% cap, they still pay a 15% on most of their capital gains because of their other income.

Also, when thinking about retirement, be aware that any of that appreciated stock is company stock in a 401(k), keep in mind that the NUA (Net Unrealized Appreciation) rules can help you get some of your 401(k) taxed at capital gains rates instead of ordinary income rates. You will pay ordinary income rates on the cost basis of the stock, and gains on stock that is sold immediately are considered long term capital gains. Or you could contribute that stock to the DAF, and not be taxed on the gains. There are lots of potential gotchas when executing a NUA, so be sure you understand the rules, or have an advisor that does.

AJ
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