When it Comes to Giving, Cash is Not King

Strategies to benefit charities and you

Usually, giving something away in the truest sense means that you are receiving nothing in return. While that may be the most benevolent form of giving, there are several strategies that benefit both giver and receiver (beyond just feeling good about helping somebody or some organization).

Certainly, the most straightforward option is to donate cash to a qualified charity. The charity receives immediate benefits and can use that cash however it sees fit. And the giver can enjoy a deduction on his or her taxes. However, for many with investments in stocks or mutual funds, there may be a more advantageous option.

As you may or may not be aware, the stock markets have enjoyed quite an increase in recent years, so many are faced with a taxable event (or capital gain) should a stock or other type of investment be sold for a profit. Note that this applies only to investments held in non-retirement accounts, as selling a holding inside of a retirement account typically does not create a taxable event.

When a qualifying nonprofit or charity sells an investment at a profit, the organization is not subject to a capital gains tax. So, if one were to give an appreciated security (usually a stock or mutual fund), the nonprofit would be able to sell the security, use the cash for operations or other needs, and avoid any tax on the gains. The donator enjoys a tax deduction for the full value of the security at the time of the gift, and also avoids the capital gains that would have been owed in the case of a sale.

Potential benefits.

Let’s say you were fortunate enough to have bought Amazon stock back in 2012 when it was going for about $250 per share. You bought 100 shares, so your investment was worth $25,000. As this article is being written, Amazon is trading for about $1,000 per share (believe it or not!). So, you would not only be the envy of many, but your shares would now be worth $100,000. If you sold your shares of Amazon at a $75,000 profit, you would likely owe a capital gains tax of about $11,250 ($75,000 x 15% long-term capital gains tax rate).

Being the savvy but benevolent investor that you are, you decided it would be better to give your Amazon stock to a local and deserving charity. You would get a $100,000 tax deduction, and once the charity received the Amazon stock, they could sell it, and pay no capital gains tax on the proceeds. That’s a pretty good win-win for all involved.

Keep in mind that you do not have to give away an entire holding or mutual fund. After all, you may want to keep some of that Amazon profit to purchase a BMW. You are allowed to give away a portion of a holding if you want to retain some for yourself or for gifts in the future.

There are many other gifting options which may be better than an outright gift of cash. Consult your advisor and/or your local charity before simply stroking a check; you might be surprised at how many ways there are to help your favorite charity while also helping yourself.

Nathan Gilbert
About Nathan Gilbert 3 Articles
Nathan Gilbert is an Investment Advisor and Managing Partner with Meridian Financial Partners in Warrenton, Virginia. Meridian is an independent, fee-only investment advisory firm providing financial planning and investment management. Mr. Gilbert was born and raised in the area and currently resides in Haymarket with his wife and three children.

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