Maximize Your Philanthropic Efforts While Minimizing Your Tax Burden
If you want to succeed as an investor, remember that taking a back seat to your investments isn’t wise. Instead, you should revisit your portfolio regularly to ensure that it’s balanced and properly diversified. A great way to realign your portfolio – with the bonus of satisfying your philanthropic desires – is gifting appreciated stock to charity. Not only will this help you balance your portfolio, but it also provides you with tax benefits and even boosts your donation amount.
Five Benefits of Donating Appreciated Stock to Charity
Below, we’ll review the following benefits you can take advantage of through a donation of appreciated stock:
- The ability to donate the full amount of the appreciated stock
- A tax deduction for the market value of the donation
- Savings in federal capital gains tax
- The opportunity to rebalance your portfolio
- A step-up in cost basis resulting from donating stock and then repurchasing identical shares
First, let’s talk about one of the biggest benefits of donating appreciated stock to a charity – you have the ability to make a larger gift to an organization or cause you to care about than if you simply gifted the cash you got from liquidating. This obviously benefits the charitable organization, as they’re receiving more than they otherwise would have from your donation. On your end, though, donating appreciated stock provides you with multiple tax advantages, too – chief among them, a tax deduction for the full market value of the gift (up to 30% of your adjusted gross income).
This method of charitable giving allows you to avoid paying capital gains tax that you would have otherwise incurred on the appreciated amount if you simply sold the stock. This could be a savings of as much as 20% of the sale amount if you’re a high earner.
Not only does donating appreciated stock give you tax breaks and enhance the value of your donation, but as previously stated, it provides you the perfect opportunity to ensure that your portfolio is properly aligned with your financial goals. As we’ve discussed on this blog before, rebalancing is key. You can’t set and forget your portfolio. Rather, you should always maintain a thoughtful strategy and that can include weaving in your charitable giving goals.
Here’s another benefit to consider: When you donate stock instead of cash, you can repurchase identical shares and often enjoy a step-up in basis as a result.
Another Opportunity When Gifting Appreciated Stock to Charity
Instead of gifting appreciated stock directly to a charity, consider donating it to a donor-advised fund (DAF). Why is this advantageous? Well, not only do you get the benefits listed above but gifting stock to a DAF also provides you the opportunity to grow your donation tax-free since donors can use the funds as a financial planning tool to enhance their charitable giving. The way this works is that the DAF distributes your contributions, based on your wishes, to any approved 501(c)(3) organizations over time. This allows you to contribute to the fund whenever it works best for your financial plan, while also incurring the accompanying tax benefits that come with donating. A DAF also allows you to solidify a spirit of philanthropy in your family for generations to come.
Now, creating and using a DAF as a venue for donating in a way that compliments your financial plans and tax strategy can be complicated, so you may want to work with an investment advisor to ensure that you’re making the most of your donations while also supporting your other financial goals.
Want to Learn More?
At Davidson Capital Management, we provide comprehensive, fee-only investment management services to help our clients make the most of their investments. If you’d like to talk with one of our professionals about your investment portfolio and goals, including how you may be able to use your appreciated stock to supplement your philanthropic efforts, contact us today.
We understand that our clients’ needs and aspirations evolve over time, and we evolve with them. Every portfolio we manage is rooted in each individual client’s priorities and customized toward their unique goals while remaining flexible to evolve over time. Let’s start a conversation today about what we can offer you through our transparent, goals-based, hands-on portfolio management.
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