If you typically give to charities and also have non-retirement investments, you may be able double dip with tax benefits.
If you give to charities and itemize your deductions each year, you are likely getting a tax deduction by writing off all or a portion of those gifts. However, many of those charities that you give to have brokerage accounts that can receive stock gifts. You may think that you’re small church wouldn’t have one, but you might be surprised – many do.
If this is the case, you could gift appreciated stocks or funds directly to the charitable organization and receive a tax receipt for the Fair Market Value of the gift. The great part about this is that you do not have sell the asset to give it to the charity, it can simply be transferred. The charitable organization does not pay taxes when they sell it and neither do you since it was not owned by you when it was sold. The double-dip is the avoidance of capital gains tax that you would have paid had you sold it yourself.
Example – John gives $10,000/year to his church by writing checks. He also itemizes his charitable deductions and in the 32% tax bracket. He roughly receives a tax deduction of $3,200 for this charitable gift ($10,000 X 32%).
He also has $50,000 worth of stock that he paid $25,000 for years ago. This year he decides to gift $10,000 of the stock to the charity. He receives a $10,000 tax receipt and also avoids the capital gains tax he would have paid if he sold the stock. His gain on a $10,000 gift of the stock would have been about $5,000, which he now avoids by gifting the asset instead of cash!
Gifting appreciated stock is generally limited to 30% of your AGI.
Disclaimer: Alex Voorhees and Reston Wealth Management do not provide legal, accounting or tax advice. 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 investment, tax or legal advisor. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategies may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss. You should consider the investment objectives, risks, charges and expenses of any investment carefully before investing.