The average person is well aware that he or she can donate money to charitable causes.  However, it is also possible to donate appreciated stock equity.  Whether you would like to help wildlife organizations, environmental organizations or other good causes, you should give serious consideration to donating your appreciate stock equity.  Here’s why.

A Mutually Beneficial Donation

Donating stock equity that has appreciated over time has the potential to be a gift for yourself as well as the charity or individual you would like to help.  This action benefits you as the donation facilitates the realignment of your investment portfolio.  Furthermore, donating appreciated stock equity is tax-efficient.  Above all, this donation will help the recipient in need of financial assistance enjoy a higher quality of life.

One of the most important benefits of donating appreciated stock is it empowers you to make a more significant donation than would be possible when giving cash.  There is no sense liquidating your stocks and donating the money when you can donate comparably more by giving the appreciated stock.  The best part is this approach empowers you to sidestep the arguably punitive capital gains tax on the amount appreciated that would have otherwise been incurred had the stock been sold. 

Donate appreciated stock and you will receive a tax deduction for the entire market value of the long-term capital gain asset with a cap set at 30% of adjusted gross income.  The icing on the cake is this approach makes it that much easier to sell stock you no longer want to own to bring your portfolio back into balance with your overarching financial goals in mind.

A Look at Donor Advised Funds

Gift your appreciated stock to a DAF, short for donor advised fund, and you will benefit all the more.  This approach creates the potential to expand the donation in a tax-free manner.  Donors rely on the fund as a valuable financial planning tool to bolster charitable giving.  The fund constitutes a charity that distributes the contribution in accordance with your recommendations to approved 501(c)(3) organizations as time progresses.

 DAFs are also beneficial in that they permit making contributions when desired, empowering donors to claim the tax deduction at the optimal time.  Add in the fact that this strategy provides a low-cost and easy means of empowering several generations of your family members to act as philanthropists and you have even more reason to use it.

DAFs work particularly well through a bunching strategy.  Those who want to give to charity yet lack the itemized deductions necessary to surpass the hiked standard deduction should consider bunching their deductions through a sizable gift to charity in one year, ultimately equaling the total amount of donations that would have been made across multiple years. This approach ensures you can itemize in the year of the sizable donation and take the standard deduction in subsequent years.

While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes.

To learn more about the potential risks and benefits of Donor Advised Funds, please contact us.