What's the best way to give to charity?

When we sit down with clients and go over their tax returns or look at budgets, we typically see money that is being donated to charities and non-profits.  Since many people give from their hearts, they don’t even contemplate the way in which they are giving.  Did you know that there are some ways to give that might be more beneficial than others? 

Let’s cover 3 ways to give that might be more tax advantageous. Of course, we are not CPAs, so be sure to reach out to your CPA to discuss which (if any) might be best for you:

1 – Gifting appreciated assets – If you have held a security for more than one year, you can gift the appreciated holding and eliminate any capital gains assessments on the future sale.   If you want to give $20k to a charity, you could either sell investments to generate the cash to donate, which could also generate capital gains, or you could gift the investment itself.  Let’s use Amazon stock as an example.  Say you bought 10 shares of Amazon at $1,000/share in 2017 for a total of $10,000.  The stock is now trading at $2,000 ($20,000 value).  If you sell the stock now, you would owe capital gains tax.  At a 15% tax rate, you would owe $1,500 in taxes to make the $20,000 contribution.  If instead, you gift the Amazon stock directly, you do not create a taxable event.  Therefore, it costs you nothing in taxes to give the full $20,000.

2 – Donor Advised Funds – Donor Advised Funds (DAF) are accounts set up to make future grants to charitable organizations, on behalf of the donor, so that they can enjoy the power of giving with less concern of timing. Because it is a tax-qualified public charity, it provides the donor with an immediate and full tax deduction in the year it is funded.  Here’s a link to Raymond James’ Charitable to find out more (Donor Advised Fund contributions are particularly important to consider in years where one has significant capital gains to offset from investments and real estate).

3 – Qualified Charitable Distributions (QCDs) – This is only available for those subject to Required Minimum Distributions.  The tax benefits are not as large as the previous two, but it can reduce Medicare Part B costs.  When you give through a QCD, the money goes directly from your IRA to the charity.  This is then excluded from your taxable income.

If you are charitably inclined, you should explore the various gifting options available.  Please consult with us and your CPA to see which gifting option makes the most sense for you. 

*Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes. Raymond James does not provide tax or legal services. The example included is hypothetical and for illustration purposes only. Actual investor results will vary. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.