With the weather turning colder in Utah and December being here upon us, it is time to finalize your end-of-year tax planning. Part of that end-of-year planning is considering how best to allocate your charitable funds. Charitable donations are often made to churches in the form of tithing, something very popular among the congregations in Utah, and donations to organizations like a hospital, schools, or other 501c3 organizations in the form of cash. But did you know that you can also donate highly appreciated stock to those same churches and charities? And stock that has had a substantial amount of growth is a good candidate for that donation. Here’s why:
Why You May Want to Consider Donating Stocks to Charity
When you have a great year with great growth you also may have a higher amount of taxes due on non-retirement accounts. Those taxes are due when you sell the stock. If you donate the stock that had significant gains, you do not have to pay the taxes on the gains and you also get to deduct the full amount you donate as a charitable contribution. That is double the tax benefit! As a CERTIFIED FINANCIAL PLANNER TM practitioner, we are well versed in many different tax strategies to help you get the largest tax benefit for your charitable donations. Let’s talk more about different considerations when giving to charity.
What Types of Stock to Donate
Looking at your stocks with the highest appreciated value is a great place to start. There is one more important piece of information to consider…you can only donate stock from a non-retirement or non-qualified account. This type of account is subject to capital gains taxes. With retirement accounts, you cannot donate stock. All money coming from a retirement account is taxed at ordinary income rates. There may be a way to use your retirement accounts for charitable contributions if you are over age 72 and paying RMDs. If you think you might benefit from a QCD, contact me or your CERTIFIED FINANCIAL PLANNER TM practitioner here at Rock House Financial and we would be happy to look into that for you.
How to Determine the Value of Your Stock Donation
If you are donating stock you will be responsible for determining the value of the donation. Note the price of the stock on the day of your donation and the amount you donate for tax purposes. The Internal Revenue Service (IRS) recommends that you use the average of the high and low price on the day you make the donation. Also, the church or 501c3 should give you a receipt of the donation for your records. Also, donations of stock must be made in kind. Let your brokerage firm know not to sell the stock beforehand but to transfer the shares to the organization.
Important note: Get a receipt when donating from your church or charitable organization.
One strategy to consider using when thinking about your charitable contributions is bunching. Bunch up your charitable deductions into one year to get the most out of your itemized deductions. The following year you will take the standard deductions. You should also look into any other deductions you can take in the bunched-up year. Bunching works well for some people or may not be very effective for others. Talking with a CERTIFIED FINANCIAL PLANNER TM practitioner at Rock House Financial is a good way to ensure you are getting the most out of your itemized deductions.
Consider a Donor-Advised Fund for Stock and Other Charitable Contributions
A donor-advised fund is a giving account, that allows you to donate and get the tax deduction immediately and then disburse the funds overtime to a charity. Here are some reasons to use a Donor Advised fund:
- Donating to a smaller charity that is unable to take your stock in kind, direct the donation through a donor-advised fund
- Focusing on one investment as your donation, you can donate the investment to the donor-advised fund, sell the investment in the giving account and then use the money to donate to a variety of charities through the donor-advised fund
- Making a large donation in the year you need the deduction to help offset a large taxable gain like selling a business or real estate. Get the deduction immediately with the donor-advised fund until you later decide on a charity to receive the donation
- Working with more than just publicly traded stock, some donor-advised funds will take non-traded securities like ownership in a business, collectibles, or real estate to help you with taxable gains
Ending The Year Right
We know that charitable contributions are important to the people of Utah. If you have ever wanted to try using highly appreciated stock as part of your charitable contributions now is a great time to start. Here at Rock House Financial, we want you to pay the taxes you owe and not a penny more by using smart, effective tax planning strategies. And we are here to help you choose the best options for your personal situation. If you have questions about your finances or how charitable giving and tax planning can help your specific situation, let’s talk. Schedule a no-obligation conversation to see how to best position yourself for year-end or give us a call at 801.447.4200 to speak to me or one of our other CERTIFIED FINANCIAL PLANNERS TM professionals today.
For more on this and other charitable giving strategies, read our recent blog post: Donating to Charity? Rock House Financial Shares 6 Ways to Do So.
RH Advisors, LLC dba Rock House Financial is an SEC-registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser, legal and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.