Is Your Charitable Giving Wise?

Sunday, January 24, 2016 | 1:20 am

Americans are among the most generous people on earth; it’s estimated that 44% of Americans volunteer regularly and a whopping 68% donate at least some amount of their hard-earned money to charity every year.

For those in the latter category, an important question that needs to be asked every time you give money to charity is, “Am I making this gift in the most tax-efficient way possible?” If you’re donating to charity with cash, it’s possible that the answer to that question is no.

And if the answer to that question is no, it’s likely that utilizing one simple strategy will allow you (all with the same amount out of pocket) to give more money to your favorite charity (or child’s school for example), and less money to Uncle Sam. As the old adage goes, “Always pay your taxes, just don’t tip them…they’re not doing that good a job”.

That simple strategy is a ‘Donor-Advised Fund’ and the concept is straightforward. Rather than gift cash to charity directly, setup a Donor-Advised Fund in your name (The Doe Family Charitable Fund, for example), gift appreciated securities to the Fund (stocks, mutual funds, a small share of your private business upon sale etc. are all acceptable contribution types). Once they’re in the Fund, sell the assets, avoiding capital gains tax altogether, before gifting the proceeds to your child’s school, old university or favorite charity etc. Alternatively, leave the proceeds invested in your Charitable Fund and donate the money to various charities over time.

The benefits to donating appreciated securities (as opposed to cash) are two-fold; more money for your charity and a higher tax deduction for you. Take an example: suppose you would like to donate $10,000 to your child’s school this year, and suppose you have $10,000 of stock (with a cost basis of $5,000). You can sell the stock, pay $1,190 in Capital Gains tax and be left with $8,810 to contribute. Your charity now receives only $8,810 and you can only deduct $8,810 on your Tax Return. By gifting that stock to your Donor-Advised Fund however, the charity receives the full $10,000 and you deduct $10,000. Or, suppose you leave the $10,000 of stock intact and write a $10,000 check to your child’s school from your checking account; when you do eventually sell that stock, you’ll still have to pay capital gains tax (that you never needed to pay, had you donated that stock instead of cash).

Essentially, if you own appreciated assets, rarely is it optimal from a tax standpoint, to donate cash to charity. Even without appreciated securities, there may be added tax benefits to processing your charitable donations through a Donor-Advised Fund (bring forward charitable contributions into high income years etc.)

Indeed, with the increasing popularity of Donor-Advised Funds (with minimum accounts as low as $5,000), what was once mainly the realm of ultra-high net worth individuals with private foundations, is now more than ever, the realm of anyone with some savings and a charitable inclination. Does this sound like you?

If you’d like to speak with an Advisor about your retirement plans or giving more effectively to charity, please contact our office at (626) 529-8347.

Haydel Biel & Associates is located at 100 E. Corson St. Suite 310, Pasadena. For more information, call (626) 529-8347 or visit www.hbawealth.com.

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