Great ways to give through appreciated stock and IRA distributions

Guest column by Scott Walters, chair of the Community Foundation Professional Advisor Council.

There are many wonderful methods of charitable giving. While I am a firm believer that all charitable giving is important and purposeful, I also believe that there are often better, more efficient ways to give.

Gifts of Appreciated Stock

Gifts of appreciated property are one of the most effective ways to fulfill your charitable goals. The most common asset that is used for this technique is appreciated stock. Other types of gifts, such as real estate, mineral interests, art, and other collectibles, are examples of the assets that may often be appreciated and, therefore, are also candidates to be given to a charity. 

For example, if you’ve owned 100 shares of a stock for many years in a company that has been successful and, as a result, the value of the stock has risen significantly from when you bought it at $10/share to $100/shares today. The shares that are now worth $10,000 have a tax cost basis of only $1,000. If you were to sell the stock and give the resulting cash for charitable purposes, the proceeds of the sale would first be exposed to the capital gains tax, typically in the range of 20% or higher for most taxpayers. So, the $10,000 sale proceeds, once reduced by the tax of $1,800 ($9,000 x 20%), is now only $8,200 that would be available to be given to the charity.

If instead of selling the stock in the example above you would give the stock to the charity directly, the full value of the stock ($10,000) would be realized by the charity. In addition, you receive a federal charitable deduction of $10,000, rather than $8,200 when the stock is sold before being given to charity. The combined benefit of avoiding capital gains tax and the greater charitable deduction make a very clear case for giving appreciated stock.

Charitable Distributions from IRA Accounts

A relatively new provision of tax legislation allows you to use an Individual Retirement Account (IRA) to make a charitable gift, or Qualified Charitable Distribution (QCD). To qualify for this opportunity, the IRA holder must be 70 ½ or older and may give up to $100,000 per year to any number of charitable organizations. Only public charities qualify for this technique of giving. So private family/corporate foundations, donor-advised funds, and split-interest charitable trusts do not qualify.

This is a particularly effective giving method when the IRA holder is able to direct some or all of their Required Minimum Distribution (RMD) to this method. In effect, they avoid paying tax on the amount that is directed to the charity. This can be very effective if the IRA holder does not itemize deductions on their tax return and, therefore, does not get the benefit of the charitable deduction.

So, isn’t it great that not only can you fulfill your instincts to give to causes that you care about and also, at the same time, satisfy the need to be as efficient as possible with your financial resources? I think so!

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On November 20th, 2017, posted in: News by
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