It is very easy to write a check to a charity and take a charitable deduction. However, this may not be the most efficient gift to make to a charity from a tax standpoint. One of the best ways to make a gift is to use assets that have appreciated subsequent to the purchase price. If these assets are sold, and the net proceeds are gifted to the charity, then you’ll pay capital gains tax on them. You’ll only be entitled to a charitable deduction based on the after tax amount.
In many cases, it is quite easy to make a gift of appreciated stock. Most charities have broker’s accounts that allow a donor to contribute shares and transfer them to the charity. When the charity sells them, there is no gain or loss, since the charity is a non-profit organization and does not recognize gains or losses.
Usually, all you need to do is call the charity to find out their brokerage firm and account number. Then you simply sign the necessary documents to transfer the shares. If you want to make a donation of only a portion of your shares, that is also easily accomplished. If your gift is being planned for year end, it is always best to start this process early, and then verify that the transfer was made before the beginning of the following year.
Of course, if the asset you would like to contribute has gone down in value since its purchase, you would probably want to sell the stock, take the tax loss on your own return and then gift the net proceeds of the sale. If you have gains and losses in the same year, it is important to calculate the net before making a gift and determine whether or not you will have offsetting gains or losses before transferring the asset.
There are different rules relative to tangible personal property. This includes furniture, collections, and other types of property that are not stocks, bonds, or real estate. In many cases, the deduction for tangible personal property is limited to the fair market value, less the long-term capital gain that would have been recognized if the property had been sold at the fair market value as of the date of the contribution. If the item was inherited or purchased for a low value, the capital gain is relatively nominal.
When making smaller gifts to many charities, such as giving $500 worth of shares to 10 charities, the process may be cumbersome enough to make it not worthwhile. The alternative to this is the establishment of a donor advised fund. This may also be accomplished though a local charity such as a community foundation or other larger charities that support many smaller agencies and organizations, such as the United Way.
With a donor advised fund, the minimum initial contribution is often $10,000.00. You may be able to utilize a donor advised fund to receive publicly traded shares. This fund will allow the shares to be sold, and then you may subsequently gift a sum to multiple charities without having to have the stock reregistered for each particular charity. In this situation, you may also be able to have a named fund at the charity, which will be established in perpetuity so long as gifts continue to be made and they appreciate sufficiently to allow the fund to grow.
Of course, there are many technical rules to establish this type of fund including the basis, length of time the asset is held, no self-dealing options, etc. Planned giving officers or development officers at charities are often very helpful and knowledgeable in assisting with transferring assets, discussing gifts, or establishing a supporting foundation.
Hyman G. Darling, Esq.
Photo Credit: Microsoft
