Two weeks ago, Garry introduced our fourth quarter blog series where we will cover various strategies for accomplishing charitable giving goals. At Master’s, we believe in heartfelt generosity rather than treating giving solely as a tax planning tool. However, integrating tax strategies can help us fulfill our charitable goals more efficiently. Last week, Jon’s blog gave us some great “cash giving” ideas. Today’s blog post will explore the 2nd tax-efficient giving strategy, Securities Gifting.
Securities is the term used to describe the different components of your investment portfolios. These securities are more commonly known as stocks, bonds, ETFs, and mutual funds. Using these securities for charitable giving can be a very tax-smart way to implement your generosity goals and year-end charitable giving.
When using securities for charitable giving, you can potentially eliminate capital gains taxes, maximize your charitable deduction, and best of all, get a greater amount of money into the hands of your favorite ministries or charitable organizations. The best way to unpack this strategy may be the use of some illustrations. We will assume that Mr & Mrs Investor want to make year-end charitable gifts of $100,000. We will also assume that they are in the 24% income tax bracket, would pay 15% tax on long-term capital gains, and that their investment portfolio has various securities positions that are “up” significantly in value (with a cost basis of 30% of the current value).
Scenario 1 – Selling the securities and using the proceeds for cash giving:
- $10,500 – 15% Capital Gains Tax incurred on the $70,000 of appreciation
- $89,500 – Net proceeds amount given to the charity (after cap gains tax paid)
- $21,480 – The charitable deduction write-off amount
Scenario 2 – Mr & Mrs Investor give the appreciated securities directly to the charity:
- $0 – No Capital Gains Taxes!
- $100,000 – The charity receives the full amount/value.
- $24,000 – The charitable deduction write-off amount
As you can see in “Scenario 2”, the charitable organization receives $10,500 more, the amount of potential charitable deduction is $2,520 higher, and the IRS… well, they get nothing! Simply put, this strategy creates a “win-win” for the charity and the giver.
There are a few nuances to remember when using the strategy of Securities Gifting.
- The greater the appreciation of the securities (gain above cost basis), the more effective this strategy becomes!
- The investment securities being donated must have been owned by the investor for 12 months, or longer, to maximize the benefits.
- If you desire to give a larger amount, but want to disburse it to multiple charitable organizations, this giving strategy can still be implemented by gifting the securities to a Donor Advised Fund first, before distributing.
Perhaps this giving strategy blog post has piqued your interest. Contact us! We would love to discuss and explore whether the Securities Gifting ideas would be effective for your unique financial situation. Regardless, may you experience the joy of generosity during your year-end giving and may you enjoy the wonderful seasons of Thanksgiving and Christmas again this year!