Have you ever wondered how to transform your investment wins into social wins? Hint: It’s not just about writing a check to your favorite charity.
There might be a security or another type of property in your portfolio that has appreciated in value over the years. Donating these securities can be a true win-win for everyone.
Turning Gains into Good… Smartly
Donating appreciated assets like stocks, bonds, and real estate can have some sizeable benefits that exceed the value in straight-up cash donations.
Firstly, tax efficiency. When you donate securities or property that have increased in value — and you’ve held onto them for more than a year — you can bypass the capital gains tax you’d otherwise owe if you sold those assets. Plus, you’re usually eligible to deduct the full fair market value of the donation on your tax returns, assuming you itemize your deductions. It’s like getting a double benefit but in this case the IRS totally approves!
Ideal assets for donation are usually publicly traded securities that have longevity in your portfolio (think over a year) and have appreciated in value. This generally means you have a low cost basis in the stock. Mutual funds and exchange traded funds can also be donated with the same or similar benefits.
Some First Steps –
Here are some steps to get started:
Choose your charity wisely. Make sure they’re set up to accept such gifts, as not all charities have taken the necessary steps to accept gifts. They must be a registered 501c3 charity which essentially means they have registered and have a non-profit tax identification number. They also need to have an investment account where the securities can be transferred. We’ve heard PrairieFire is a good place to do this! 😊
Get an Appraisal. For non-public assets, grab an independent appraisal to determine the fair market value — it’s essential for tax reporting!
Initiate the Transfer. Work with the team at PrairieFire to transfer the assets directly to the charity. Key point here — don’t sell the assets first; that could trigger capital gains taxes!
Save the Paperwork. Document everything – especially if you’re donating private assets such as artwork or other property. Receipts, appraisals, transfer forms — keep them close.
For example –
Imagine you bought some shares for $10,000 a while back. Now they’ve grown in value to $30,000. If you sell those shares, you could be looking at a potential capital gains tax bill on the difference in the original price and today’s value, i.e. $20,000 in capital gains. These gains are taxed in different amounts depending on your tax bracket. The higher income brackets might pay 23.8% which would be $4,760 in tax due.
If instead, one transfers those shares to a charity, neither the person donating the securities nor the charity will pay the capital gains. The party donating the stock is not moving the tax bill – it goes away.
The full $30,000 goes to a cause worth caring about, and you may get to deduct that amount on your taxes.
The Takeaway
Donating appreciated assets isn’t just a one-way street. It enables charities to realize their vision with your help. It’s a win-win-win for you, the charity, and the community!
Please consult with your advisors at PrairieFire on the most efficient ways to further your causes and avoid unnecessary tax hits.
