As 2018 comes to an end and you look for ways to reduce your year-end tax exposure, consider charitable contributions…There are multiple ways to donate to a charity. Donations can be made from cash accounts, appreciated assets (stocks or mutual funds), real estate property, or tangible goods such as old vehicles or even clothing. Americans are giving away more than ever, charitable contributions have increased for 37 of the last 40 years. In 2017 alone, charitable giving exceeded $410 billion in the United States, the majority coming from individuals. With contributions growing exponentially, it’s important to determine the most efficient manner to make these contributions for you and your family. Here are three questions to consider to help you maximize your charitable contributions:
There may be a more advantageous strategy than donating cash. If you own appreciated stock or mutual funds, consider donating the appreciated assets from your portfolio, rather than cash from your bank account. The tax deduction for appreciated stocks or mutual funds is equal to the market value of the asset upon the donation (if the asset is owned for more than 12 months). This allows you to:
(1) Minimize your future capital-gains tax exposure.
(2) Increase your cost basis within your investment account by adding the cash that you would have donated to your investment account.
(3) Receive the same tax deduction as giving an equivalent amount of cash.
(4) Continue to support non-profit 501(c)(3) organizations more efficiently.
This table below compares three charitable giving scenarios:
The simple answer, no. Cash is better than donating a stock or mutual fund that is down in value. If the stock is valued less than your original purchase price, you are better off selling the stock and contributing the proceeds of the transaction to charity. In fact, you may receive tax benefits when it is time to file. The tax benefits come from receiving the itemized deduction for your charitable contribution as well as, a capital loss on the sale of stock.
A charitable giving strategy that many individuals have yet to utilize is the use of a Donor-Advised Fund. A Donor-Advised Fund is a fast-growing charitable giving vehicle offering flexibility for individuals’ who participate in annual charitable giving. Donations to the fund are irrevocable, but are eligible for a tax deduction on the date they are received by the foundation. Therefore, allowing you to “time-shift”, that is to donate now, receive the tax deduction now, and make grants in the time frame that works best for you. The Donor-Advised Fund can be used to make contributions to multiple charities, establish automatic contributions, and even grow the value of your future charitable gifts.
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If you have any questions or would like to improve your charitable giving strategy, we can help. Call us now at 704-557-9750.
The information provided is not written or intended as specific tax or legal advice. We are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Source
As the Director of Financial Planning for Spaugh Dameron Tenny, Jordan applies his academic and practical experience in the creation and maintenance of the firm’s financial plans, as well as coordinating research efforts for products and strategies that may benefit clients. Originally from Canada, Jordan came to Charlotte on a golf scholarship where he attended Queens University of Charlotte. In addition, Jordan has a Master’s degree in Wealth and Trust Management.
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