Tax-Smart Giving

With constant changes in the tax code, the days of simply writing a check and receiving that tax deduction are gone. Being aware of the rules and how they might apply to you ultimately have two main benefits;

1.   They allow you to save money on taxes.

2.   They allow you to give more money to the organizations you care about.

If you have questions about any of the strategies below, we encourage you to contact your financial advisor or our financial advisors at Wagon Wheel Financial. We happily provide complimentary guidance regarding charitable giving. You can reach us at 541-916-1234 or on our website at www.wagonwheelfinancial.com 

Here are a few strategies that will help you make more informed decisions about your charitable giving:

Qualified Charitable Distributions

A qualified charitable distribution (QCD) is a tax-efficient way for individuals 70 ½ years or older to donate money to charities. It allows them to transfer up to $100,000 annually from their individual retirement account (IRA) directly to a qualified charity without including the withdrawal in their taxable income. The QCD was introduced by the IRS as part of the Pension Protection Act of 2006 and has been extended several times since then. This allows individuals to lower their taxable income without being subject to required minimum distributions (RMDs).

QCDs are our favorite way to give to our favorite charities because this is giving money that we never paid taxes on!  

Stock Gifting

Gifting stock to charity is a unique way to support your favorite nonprofit organization while receiving significant benefits as an investor. It can be done by donating shares of publicly traded companies, mutual funds, or exchange-traded funds (ETFs).

When you gift stock to a qualified charitable organization, you not only help them but also enjoy potential tax savings. Let’s explore this concept further.

How does gifting stock to charity work?

When you donate stocks, you transfer the ownership of the shares to the charity. The value of the shares on the day of the transfer determines your tax deduction. If you have held the shares for over a year, you can claim a tax deduction for the full fair market value of the donated shares, up to 30% of your adjusted gross income.

Moreover, selling appreciated stocks can trigger capital gains taxes, which can be as high as 20%. Gifting stocks to a charitable organization allows you to avoid paying those taxes.

Additionally, donating stocks can benefit charities in many ways. They can either sell the shares or hold onto them for future investment. Moreover, charities are not subject to capital gains taxes, so they can sell the gifted shares without tax implications.

What should you consider before making a donation?

Before making a stock donation, it’s essential to do some research to find a reputable charity. You should verify that the organization is a qualified charitable organization, meaning that they have tax-exempt status under section 501(c)(3) of the Internal Revenue Code. This information is typically available on the charity’s official website or can be obtained by contacting the charity directly.

Another important factor to consider is the type of securities you’re gifting. Some types of securities, like closely held stocks, can be difficult to value accurately. Additionally, some charities may not accept certain types of securities.

It’s also crucial to keep accurate records of your donations. You will need to provide documentation of your donation when filing your taxes. The charity must provide you with a written acknowledgment of your gift, including the date, the number of shares, and the value of the shares received.

Donating stocks to charity is a win-win proposition. You get to help your favorite charity and benefit from potential tax savings while the charity receives much-needed financial support. To ensure you receive the most significant tax benefits possible, consult a tax professional before donating.

Donor Advised Funds

A donor-advised fund (DAF) is a charitable giving vehicle that allows individuals, families, and organizations to make an irrevocable charitable donation to a public charity, such as a community foundation, and take an immediate tax deduction.

Donors can contribute cash, securities, or other assets to a DAF and can often contribute as much or as little as they want, as frequently as they wish. The main benefit of a DAF is that it provides donors with more flexibility and control over their charitable giving while also providing tax benefits.

This is a more advanced gifting strategy, but it can have many benefits for those that are charitably inclined.

Hopefully this article has helped you make a more informed decision on how to give money to your favorite organizations. 

Wagon Wheel Financial is happy to partner with many non-profit organizations.  We provide donor education and will happily answer any questions you might have about the above strategies at no cost to you.  You can reach us at: 541-916-1234 or you can contact us on our website at www.wagonwheelfinancial.com

Author: Aaron J. Tuttle

Aaron Tuttle is a Financial Advisor with Wagon Wheel Financial LLC Aaron Tuttle is a Registered Representative with Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA & SIPC.

© Wagon Wheel Financial LLC 2023

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.