One option for charitable giving is through donations with shares of appreciated stocks. There are choices to use individual stocks, exchange traded funds, and mutual funds. This is a great idea for people who have appreciated securities in taxable accounts. Continue reading for more information on how to donate appreciated stock to charity with the use of a donor advised fund.
Making Appreciated Stocks Tax Efficient
Using appreciated stocks as donations allows people to contribute the market value of the security and eliminate any capital gains taxes. If the stocks were sold and the proceeds were used as a donation, there would be a portion taken out for the capital gains.
What is a DAF?
A donor-advised fund is a charitable investment account. When you contribute to this account, you are able to immediately take a tax deduction. The funds in the account can then be invested for tax-free growth and give grants to an IRS-qualified public charity. DAFs are one of the most tax-advantaged ways to give to charity.
How does donating stock work?
When you donate stock directly to charity, you will take a tax deduction for the full fair market value. Since you are donating stock, your contribution and tax deduction can increase over 20%. You will be able to give more to charity by not having to pay the capital gains tax that you would if you sold the stock and donated the proceeds. This extra donated money allows charities to do even more with their funds.
Donate High Performing Stock and Buy New Shares
If you have highly appreciated shares, donate them through your donor advised fund and purchase new shares of the same security. The new security will have a higher basis which will lower your future tax liability if you sell it. It will also maximize your current tax advantages for donating the other shares.
Sign up for automatic funding of your DAF
You can sign up for automatic contributions to your donor advised fund from a brokerage account to donate over time with ease. Over time your small contributions can develop into a large donation to make a bigger impact on the charity. Having automatic contributions will also increase the amount that is able to be invested so it has the ability to grow tax free throughout the year until you make a grant to charity.
Donate More When You Make More
Using a donor advised fund can help you utilize tax advantages to sustain future donations. When you have a high income year, make a larger contribution to your DAF. One example of when you would want to do this is when you receive proceeds on real estate you sold. Pre-funding future givings allows you to set aside assets for charitable use to be applied over time.
Using appreciated securities to donate to charity is a great way to utilize assets for the greater good. It also allows people to leverage tax advantages on their assets. Using a donor advised funds makes the process easy for the contributor and the charities.
Sources:
https://www.stanbridgeacademy.org/donate-stock-or-give-through-a-daf.html
https://www.fidelitycharitable.org/articles/4-smart-contribution-strategies.html
https://www.fidelitycharitable.org/giving-account/what-you-can-donate/donating-stock-to-charity.html
