Every year, around the holidays, we get questions on how to lower tax bills and charitable giving always comes to the forefront of the conversation. How fitting that a gift can both be rewarding to the recipient, but reciprocal to the giver in a variety of emotional and financial ways. The key aspects to doing this are 1. have a good tax advisor and 2. keep it simple.
Contributing appreciated “non-cash assets” like stock, is one of the best ways to maximize your charitable giving tax benefits. This can be done from giving shares in a security that you have owned for over a year directly to a charity OR to a donor advised fund (DAF). A donor advised fund is charitable fund that you can establish at a public foundation like Schwab Charitable. When you donate shares you will receive an immediate, same-year tax deduction for the fair market value of the shares and potentially eliminate capital gains taxes. This means you can give even more to charities you support and less taxes to the IRS. When you give to a DAF, your shares are typically sold immediately, and the cash is credited to your DAF. It can sit in that DAF for years before you give it all away to your favorite charities, or you can give it all away at one time.
One of our clients recently got news that their company was being bought out. They had over $500,000 of shares in the company with a cost basis less than $100,000. We collaborated with their CPA and worked out a plan for them to gift away a significant amount of their shares to a DAF so they could dramatically lower their tax bill, saving not only on the capital gains tax of $20,000 for every $100,000 that would have been sold, but also reducing their tax bill with a $200,000 gift to the DAF.
That is what we call a win/win. If you have any questions regarding charitable giving please contact your financial adviser.
-The Leisure Capital Management Team