Giving Appreciated STock

If you’ve held stock, ETFs, or mutual funds for longer than a year and have a gain in the position, it often makes sense to donate the stock rather than cash to the charity. Why? Because the charity pays the capital gains tax (they don’t pay taxes) rather than you so you often save 15% on the gains or more by gifting those shares to charity.

Qualified Charitable Distributions (QCD)

If you’re over 70.5 and have savings in a traditional IRA, you can distribute the funds directly from your IRA to the charity of your choice directly from the IRA through QCD. This satisfies the RMD requirement if you don’t need the income to live on and you don’t realize that distribution as income on your taxes. Again, if you’re currently writing checks from your bank account to charity over 70, you need to start keeping that in your account and start giving from your IRA.

Donor-advised Funds (DAF)

If you have irregular income or sold a business and have one year of higher income than normal, consider giving to a Donor-advised Fund. A DAF is like a little foundation from which you can request make distributions to charities to your choice at a later time. The assets put in a DAF (can be stock contributed to a DAF) can be invested and appreciate while you take a few years to distribute the assets in the DAF to the charities of your choice. This works well when you want the tax-favorable deduction now but want to space or spread out your giving over a few years.

Working the standard/Itemized Deductions

Giving via QCD doesn’t add to your deductions so you do not need to itemize to get a benefit. However, if you give stock or to a DAF you will only realize the tax benefits if you itemize on your taxes rather than take the standard deduction. Now you do get to deduct a little charitable contribution on the standard deduction but that’s limited to $2,000 for married filing joint households. Most likely to benefit from giving, you will have to plan to itemize and it may make sense if you are close to itemizing each year but are under the limit, to give 2 years of giving in one year so you can itemize one year and then continue to give (from a DAF for example) in year 2 and in that year take the standard deduction.

Ultimately, we hope that everyone is in a position to itemize because they’re giving so much, but that’s a goal and not where everyone may wish to be.