When sitting down to plan your charitable giving for the year – or quarter, or month – it’s normal to start wondering…”is there a better way to do this?” The short answer is: possibly. Those who make larger, regular gifts will tell you there is a way to ensure your recipients are getting the most out of your gift AND ensuring you’re putting yourself in the right position tax-wise.
Provided you’ve had the stocks in question for more than a year and you have gain in the stock price, the question of whether to sell your stock and donate what’s left after you pay capital gains tax, or donate securities directly is almost a no-brainer. With the second option, you’ll get a bigger deduction and the charity of your choice gets a bigger donation.
Is it always so simple? As with most financial decisions, there are some nuances to consider. According to Nasdaq.com, “Whether it makes more sense to give shares of stock or sell the stock and donate the cash depends on whether the stock has increased or decreased in value since you bought it. If its value has increased over time, it’s better to donate the stock.” If you’re looking instead at an investment that has lost value, you’ll be in better shape to sell the stock and give the proceeds to the charity. “Your deduction is still based on the current value of the stock,” according to the same author, “but you get to use the loss to offset other gains.”
For long-term giving
If you want to make a longer-term commitment to giving, your financial advisor can help you set up well executed plans. They’ll help you consider options like charitable remainder trusts (CRTs), private foundations, and donor-advised funds. Each of these offer their own benefits in terms of flexibility and taxes; you can work through all scenarios to find that which best fits with your personal financial goals, and your giving priorities.
If you’re older than 70 ½, donating to a qualified charity could save you taxes on your required minimum distribution (RMD). According to Forbes, there are a few benefits to going this route in satisfying your RMD:
- The sum going to charity is not included in [your] adjusted gross income or AGI.
- There are no percentage limitations on charitable deductions.
- Donating these assets, rather than taking minimum required distributions, may also enable older donors to avoid certain penalties that come with a higher AGI, such as higher Medicare premiums.
In many cases, it’s highly beneficial to donate securities you’ve had more than a year, rather than donating cash, directly. As is true in most financial scenarios, there may be additional nuances to consider. It’s always best to consult with a trusted representative to determine which is the best course of action for you, and your financial goals.
Please contact us to have a conversation about giving in ways that fit your financial goals and honor your values.