We believe in giving back. But we don't just want to give - we want to give the smart way. Here are some things to consider when you're giving to charity:
Donating Appreciated Stock
Instead of donating cash, consider donating stock that has appreciated. Why? Because you end up saving money two different ways.
Firstly, you don't have to pay capital gains taxes on the stock you donate. And when you donate stock, the charity doesn't have to pay capital gains tax either. This means that the charity ends up getting more money than if you had cashed out the stock and then just donated the money instead.
Secondly, you get a higher tax deduction when you donate appreciated stock. If you sell your stocks for cash and then donate, you'll be getting a lower deduction amount (what remains after you pay those capital gains taxes). But when you donate appreciated stock, you will get a full tax deduction for the whole market value of the stock. If you're itemizing deductions, this difference can save you a lot of money.
Qualified Charitable Distributions
Qualified charitable distributions are a great idea if you:
- are over 70 ½,
- have individual retirement accounts you must take RMDs from, and
- want to donate to charity
Read more about them in our post about QCDs.
Donor Advised Funds
Donor advised funds are a convenient way to maximize your tax deduction in a single year. Essentially, you contribute a large amount of money (either in cash, stocks, or another form) into a fund. Then you decide how to donate it in smaller amounts in later years. Benefits of a DAF:
- You get a large up front tax deduction for your contribution.
- You get the flexibility of deciding when to donate to your favorite causes.
- Your contributions can be invested and continue to grow without having to pay any taxes on it.
There are many ways to give to charity, but we want to make sure that every dollar you give is maximized. Make sure you send less money to taxes and more money to the causes you care about.