Strategic Charitable Giving: Think Beyond Just Writing a Check
When giving to charity, many think of writing a generous check to their favorite cause(s). Although convenient, this is the most inefficient way to give. With stock markets close to all-time highs, donating highly appreciated securities may be a particularly tax-efficient and effective funding method.
Selling securities can generate significant capital gains taxes as well as trigger the 3.8% net investment income tax. However, donating highly appreciated securities to charity, can eliminate capital gains taxes while allowing the donor to take an income tax deduction equal to the fair market value of the donated asset. Furthermore, if the donor still wants exposure to the donated security, they can purchase it with the cash they originally intended to donate and their new cost-basis will be the fair market value at the time of purchase.
To simplify this process, many charitably minded investors utilize Donor Advised Funds “DAFs”. A DAF is a charitable giving vehicle administered by a public 501(c)3 organization, where donors establish an account with the sponsor (ex. Fidelity Charitable and Schwab Charitable) and are able to donate cash, securities and other complex assets. Donors receive a tax deduction in the year assets are donated and then can decide at a later time which IRS-qualified public charities they want funds granted to.
DAFs enhance and coordinate charitable giving by consolidating tax reporting, investing your donation for tax-free growth, maximize potential tax benefits and accept a wide range of assets. Contact your ACM Advisor to find better ways to give that can benefit you and your favorite causes.
Below find an informative video on Donor Advised Funds from one of our independent custodians.
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