People give of their time, talent and treasure for a variety of reasons. Some see it as a moral duty to use what they have to help others regardless of the type of charity they support. Having the ability to improve the lives of others is viewed by many as a privilege as well as a responsibility. The knowledge that you’re helping others is empowering, typically making the donor feel happier and more fulfilled. Others see charitable giving as a way to encourage their children, family and friends to help make a positive change in the world.Separate from the benefit of giving financially is the potential to minimize taxes on appreciated assets and tax-deferred accounts. As the bull run continues, many people are faced with the question of “what to do with appreciated assets in taxable investment accounts?
For investors who are philanthropically-minded, donating appreciated stock (or ETFs, Mutual Funds..etc) from a taxable investment account can be one of the most tax-advantaged methods of giving. Doing so may eliminate capital gains tax liability on the sale of assets and provide a current year tax deduction if you itemize, while allowing the supported charity to receive the most money possible. For example, assume you purchased 100 shares of stock priced at $50/share, for a total of $5,000. Over the years the stock rose in value to $150/share and you are wanting to make a significant donation to your favorite charity. If you decided to fund the donation with the sale of the stock for $15,000, you would likely owe capital gains tax on the $10,000 gain. If you donate the stock directly to the charity instead of selling the stock and then donating cash, you can potentially eliminate the capital gain on the sale and deduct the fair market value of the stock donation, in this case $15,000, if you itemize. Once the charity receives the stock, they will liquidate it to generate cash. You will want to confirm with your charity of choice to determine if they accept securities as a donation before proceeding with the donation.
For most investors, a 401(k) or rollover IRA, is their largest retirement asset. Beginning at age 70 ½, you are required to take minimum distributions (RMDs) annually from your IRA. Since you didn’t pay taxes on your contributions to the IRA, you are taxed when you take a distribution. You may be able to avoid taxes by making qualified distributions directly to a charity (must be a qualified 501(c)3 organization) from your IRA. You wouldn’t receive a tax deduction for your donation, alternatively you won’t be taxed on the distribution. This is an excellent choice for donating if you are not intending to spend your entire required minimum distribution or don’t itemize your deductions. Helping to make an impact with a local charity while potentially reducing your tax bill is beneficial to all parties. Do you remember the old adage “It’s better to give than to receive”? With proper planning, it’s possible to do both at the same time.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or tax advice. Consult your tax advisor for more information regarding your particular situation.