The dual benefits of non-cash donations

Maximize your philanthropic mission and minimize taxes.

You know the saying “cash is king”? That’s not necessarily true, especially when it comes to making charitable contributions to the causes you care about. There’s an opportunity to maximize your philanthropic gift and minimize your taxes with the donation of non-cash assets.

And the opportunity is significant: According to a study of tax data by Cause lQ, while 90% of wealth in the United States is held in non-cash assets, only 14% of nonprofits reported receiving non-cash contributions.

With thoughtful planning, you can donate stocks, mutual funds, bonds, company shares, real estate and more to your favorite charities – and make a major impact.

Bottom-line benefits

Opening your mind – and heart – to donating non-cash assets will not only further the mission of your beloved nonprofits but can have significant tax benefits for you as well.

Because donors typically hold more wealth in non-cash assets, the value of the items they possess are worth more than what they’re able to donate in cash. Charities benefit by effectively receiving a larger donation.

But that value can work for you too. Donating a non-cash asset that has appreciated in value, like real estate or stock, allows the charity to benefit from the full fair market value of the gift. You can also deduct the fair market value of the donated assets, with the added benefit of avoiding capital gains taxes.

Once you’ve made the donation, it’ll also reduce the size of your taxable estate, lowering your tax bill overall.

Before you decide what type of asset to donate, speak with a tax professional to ensure you’re gifting the non-cash asset that will provide the most significant tax relief. Additionally, considering how much you’d like to contribute to the charitable cause you choose may help you determine which asset you should donate.

Guidelines for donations

If you’d like to donate non-cash assets, check with the charitable organization first to ensure they accept these types of contributions. Typically, the nonprofits that are willing to receive real estate, securities and the like, will advertise this fact (since they must be equipped to manage and liquidate them). If you don’t have a specific charity in mind, you may be able to find an organization that supports the cause you care about and that’s willing to accept the non-cash assets you want to offer.

Pro tip: If you have a donor advised fund (DAF) or are considering establishing one to expand your philanthropic commitment, it may make the process of donating non-cash assets easier. You can transfer non-cash and even illiquid complex assets to a DAF and use the proceeds from liquidation for grantmaking to your favorite charities.

If you’re donating real estate, you’ll be required to obtain a third-party appraisal to attach to the tax filing to validate the deduction you claim. Gifting private shares requires a third-party valuation as well. You don’t need this information prior to making the donation but will need it in time for filing your tax return.

Your advisor can help guide you through the process, so you can focus on fulfilling your philanthropic goals and leaving a meaningful legacy. You may be able to maximize your generosity and reduce your tax burden with a strategic, well-planned donation to the organizations furthering the missions you care about most.

Raymond James does not provide tax advice. Please discuss these matters with your tax professional.

Sources: orrgroup.com