Using Your Investment Portfolio to Make a Difference

by Todd A. Hasty
Nash - Hasty Investment Services, Inc.

If you are like most Americans, being charitably inclined is second nature. Most charitable organizations are based on a founding principle of improving quality of life. They are a major source of funding for humanitarian causes, religion, education and the arts. In addition to the countless hours of service given to charitable causes, U.S. citizens are estimated to have donated more than $390 billion to charities in 2016, according to CharitableGiving.org. Those charitable organizations can be local, regional or national, but they all depend on the kindness and caring of individuals to help fund their missions and goals.

While giving money by check or cash is a common way of giving to your favorite charities, there are some alternative assets you can use instead. These options could potentially allow you to make an even larger donation, while securing greater tax benefits for yourself. I’d like to explore a couple of ways you can utilize your investment portfolio—which you may not have considered before—to make your planned giving easier, while at the same time helping your charities of choice.

Long-Term Appreciated Securities
Donating shares of publicly traded, unrestricted, appreciated stock that you’ve owned for longer than one year can be one smart technique. You are normally entitled to a tax deduction equal to the full market value of the security at the time the gift is made. Because we have essentially been in a sustained bull market since 2009, some of your individual stock positions may have inflated quite substantially.

Perhaps you own shares of a company that were purchased ten years ago at $20 per share, and that same stock is trading at $75 per share today. Depending on your personal tax bracket, you may have to pay capital gains tax on that $55 appreciation for each share you decide to sell. However, if you donate some of those shares to your favorite charity, you can get the tax deduction this year for the market value of the shares. The charity can then sell the shares and will not be taxed on the sale of your gift. Thus, you have escaped paying the capital gains tax and at the same time created a tax deduction, while the charitable organization can benefit from your generous gift in full. (You must register the shares in the name of the charity in order to make the donation and gain the tax benefits.)

Although charitable contributions are 100-percent deductible, there are some limitations against your Adjusted Gross Income (AGI) pertaining to how much you can deduct in a given year. While straight cash donations to public charities allow a deduction of up to 50 percent of AGI, donations of long-term appreciated securities limit your deduction to 30 percent of AGI. You may have the ability to carry forward any deductions exceeding these limits for up to five years, but you are required to utilize as much of the present year’s deduction as possible.

Qualified Charitable Distributions
Starting in tax year 2015, making a Qualified Charitable Distribution (QCD) directly from a traditional IRA to a charity became a permanent regulation in the tax code. What does this do, you may ask? If you are age 70½ or older and hold assets in an Individual Retirement Account (IRA), you are subject to Required Minimum Distributions (RMDs). You must make these distributions from your retirement accounts each year by December 31st or face a 50-percent tax penalty on the amount that should have been taken out. Those RMDs are 100-percent taxable as income in the year of withdrawal.

If you are in a financial position where you are taking the RMD each year because of the mandatory IRS requirement—and not because you need the money as supplemental retirement income—there is a way to avoid paying all that tax on your distribution. You can make what is called a QCD, which directs your distribution in that particular year to a charity of your choice. By directing the custodian of your IRA to make it payable directly to the charity, you can avoid adding the distribution to your annual income, as well as the tax that would be payable on that additional income. QCDs are limited to $100,000 per taxpayer, per year.

These are just a couple of the immediate ways you can use your investment portfolio to the benefit of charities. Not only do they come with tax benefits, they may give you the ability to donate even more to the philanthropic concerns and organizations you care most about. There are many more long-term and legacy planning strategies you can use to help charitable organizations as well—consult with a qualified professional for your short-term and long-term charitable planning options. Choosing the right approach to your giving, for your personal situation, will help you give more effectively and efficiently. iBi

Information provided is general and educational in nature and should not be construed as legal or tax advice. Content provided relates to federal taxation only and availability of certain federal deductions may depend on whether you itemize deductions. Rules and regulations regarding tax deductions for charitable giving vary at the state level. Consult an attorney or tax advisor regarding your specific legal or tax situation.

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