Charitable Giving - 5 Mistakes to Avoid - Part 2
By Greg Hammond, CFP®, CPA
Charitable giving provides benefits for the non-profit organization receiving the gift and for you. You can free up additional funds for charitable giving by being more effective with your charitable donations Are you currently giving in the most efficient and beneficial way? Avoid these 5 common mistakes so you can give more and make a greater impact on the non-profit organizations and causes you care about.
2. Giving Cash vs. Appreciated Investments
When you receive a charitable giving donation request in the mail or over the telephone, do you pull out your checkbook, credit card, or debit card to make a contribution? By doing so you could be giving up an additional tax benefit. Instead of writing a check, you could donate an appreciated stock, mutual fund or other appreciated asset and receive two tax benefits with a single gift. When you donate an appreciated investment you not only receive a deduction for the gift, but you also avoid the capital gains taxes you would have paid by selling the investment.
For example, if you donate $10,000 in cash to your favorite charity you potentially receive a charitable giving deduction for $10,000. However, by donating a stock valued at $10,000 that was originally purchased for $7,000, you receive a charitable deduction for the $10,000 full market value of the stock and also avoid capital gains tax on the $3,000 that the stock appreciated since purchase. This could save you up to 20% of the capital gain. Why not save on both income and capital gains taxes with the same gift?
What if you don’t want to donate the stock because you like how it has performed and you plan on owning it for a long time. In this case, it still makes sense to donate the stock and use the cash allotted for the donation to re-purchase the stock. This way you avoid the current capital gain on the stock and establish a higher cost basis for it, thus reducing your future capital gain.