As we enter the holiday season and the feeling of generosity it evokes, many people begin to consider how they can give back by donating to charity. 31%, or almost a full 1/3 of all charitable donations, are made annually in December. The majority of people make what we call "cash" donations by dropping money in the little red kettle, writing checks, or making online donations. But what if there was a way to make the same impact of a cash donation, while providing yourself a long-term tax benefit too?
Well, such a strategy exists and it's the giving of appreciated shares of stock to charity. And it's actually really easy to do. It works like this, if you own shares of stock in a brokerage account that have appreciated in value and that you've held for more than one year, you can donate them. And it's a smart move to consider because if you were to ever sell them at a gain, you'd have to pay long-term capital gains taxes, which is usually something people like to avoid. But, if you donate them, the charity is able to receive and sell them tax-free. They get the money to use, you avoid having to those taxes, and if you really like the stock, you can use the money you would have donated to charity to re-buy the shares and reset your basis.
It's a pretty good deal and what makes it even better is that not only do you avoid capital gains taxes, but you also still get to use the value of the shares you donated as charitable deduction for that year on your income tax return. Now like everything, there are a few caveats. One, if you're in the 10% or 15% tax bracket you don't have to pay capital gains taxes, so it may just be easier to donate cash. Two, this strategy only works for shares held in a "taxable" account. It doesn't work or really make sense for shares held in a retirement account like your 403(b) or Roth IRA. Finally, if the amount of the shares you'd like to donate is substantial, it may make more sense to donate them to what's called a Donor-Advised Fund to allow you greater control of how much the charity(ies) receive over time.
So as you're evaluating your charitable giving this December, remember that the gifting of appreciated stock is an option and can be a win-win for both you and the organization(s) you support. If you'd like to learn more about this strategy, other giving strategies, and which right for you, reach out to us below and we'd be happy to help you figure out what's best for your situation.
Mychal Eagleson, CFP®, ChSNC®, AAMS® is the President of An Exceptional Life Financial, a firm that specializes in financial planning for teachers and families with special needs. He frequently writes and speaks on personal finance topics relating to these clients. Mychal also serves on the board of the Financial Planning Association of Greater Indiana as the Director of Public Relations & Social Media. To read more of his articles and learn about An Exceptional Life Financial please visit: www.anexceptionallifefinancial.com.