Doing so is a powerful tax strategy to optimize your charitable giving
For investors seeking to support charitable causes while maximizing their tax benefits, donating stock instead of cash can provide significant advantages. By contributing appreciated securities to a qualified charity, investors can potentially deduct the full fair market value of the donated stock on their federal income tax return.
Here are a few reasons why donating stock can deliver more “tax bang for the buck” compared to cash donations and how you can leverage this strategy to optimize your charitable giving.
The Tax Advantage of Donating Stock
One of the key benefits of donating appreciated stock to charity is the ability to write off the full fair market value of the donated securities on your federal income tax return. This differs from cash donations, where the deduction is limited to the amount contributed.
Capital Gain Tax Considerations
When investors sell appreciated securities, such as stocks, mutual funds, or other capital assets, they are typically subject to capital gains tax on the profit earned. However, by donating these appreciated assets directly to a qualified charity, investors can potentially avoid paying capital gains tax altogether.
Maximizing Tax Savings
By donating appreciated securities instead of cash, you can unlock two significant tax benefits:
Deducting the Full Fair Market Value: When donating appreciated stock, the donor is eligible to deduct the full fair market value of the securities on their federal income tax return. This means that the deduction is based on the current value of the stock, not just the initial purchase price. As a result, you can potentially claim a larger tax deduction, thereby maximizing their tax savings.
Eliminating Capital Gains Tax: By donating appreciated securities directly to a qualified charity, you can bypass the capital gains tax you would have incurred if you had sold the stock first. This can result in substantial tax savings, especially for individuals with significant capital gains.
Charitable Giving Strategies
To make the most of donating stock to charity and maximize tax benefits, affluent investors can consider the following strategies:
- Identify High-Appreciation Securities: Look for stocks or other capital assets that have experienced significant appreciation since their purchase. By donating these securities, you can leverage the higher fair market value to increase your tax deduction.
- Research Eligible Charitable Organizations: Ensure that the charity you plan to donate to qualifies as a tax-exempt organization under the IRS guidelines. This ensures that your donation is eligible for the tax benefits associated with charitable contributions.
- Timing Donations Strategically: Evaluate your tax situation and coordinate the timing of your stock donations with your overall tax planning. It may be advantageous to donate appreciated securities in years with higher taxable income to offset potential tax liabilities.
- Seek Professional Advice: Given the complexities of tax laws and individual circumstances, it is prudent to consult with a qualified tax advisor or financial planner who can provide personalized guidance tailored to your specific situation.
Support What You Care About
Donating stock to charity instead of cash offers investors a powerful tax strategy for optimizing their charitable giving.
With careful planning and professional guidance, you can effectively navigate the tax landscape, reduce your tax liabilities, and support your philanthropic initiatives you care about most.
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Amy Anderson joined the ILG Financial team in 2023 as the client relations coordinator. Her responsibilities include scheduling of appointments, annual check-up notifications, and annuity and required minimum distribution assistance. She is a graduate of Harding University with a degree in Computer Information Systems. Amy and her husband have two children and she enjoys reading, crocheting, music and spending time with her family.
Chase Lopez joined the ILG Financial team in 2020 as an advisor. Chase is a 2016 James Madison University graduate with a degree in management. Chase has been trained under the tutelage of Dave Lopez, who is not only the founder and managing member of ILG Financial, but also is Chase’s uncle and godfather. He also enjoys working alongside his cousin, Megan, who is Dave’s daughter. Chase, as a fiduciary, believes in putting his clients interests first, and building out plans for his clients where they can have a happy and fruitful retirement. He married his beautiful wife in February 2022 and both use most of their free time chasing around their little pup, Aurora.
Jessica Carson joined the ILG Financial team in 2018 as an agent. Jessica and her husband have four children, two dogs, 3 barn cats, 5 chickens, and three parakeets. She indeed loves her children and pets! When not at work, Jessica enjoys playing the piano and cello as well as traveling and spending time outside with her family, hiking, fishing, and boating.
Terri Center joined the ILG Financial team in 2019 as client services manager. She handles client records, application processing, and gathering information to provide a professional and friendly experience with all of our clients. Terri is a graduate of Oakland University. She is married and has two children. She enjoys hiking, family time, and puzzle challenging video games. She also likes to share her creativity in her canvas paintings and sewing projects.
Megan Jones joined the ILG Financial team in 2020 as marketing director. Megan and her husband live in Fredericksburg, VA with their German Short Haired Pointer, Gus. Megan is a graduate of Longwood University and holds a degree in communications. Megan is the oldest of Dave Lopez’s three children and not only enjoys working alongside her father, but also with her cousin, Chase, who joined the ILG Financial team in 2020 as an advisor. When not at work, Megan enjoys sitting on the back porch with family and friends enjoying food and music.