Shakespeare Blog: View from the Lake

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Non-Cash Donations to Charity

Written By: Brian Ellenbecker, CFP®, EA, CPWA®, CIMA®, CLTC®

Purpose and legacy have long been important considerations for many people as their wealth increases over time. You want to feel good by doing good, all while making sure your money goes as far as possible. There are many tax-advantaged ways to donate that are beneficial for both the charity and your bottom line.

If you are wondering about how best to maximize your intended charitable dollars for 2022, the best vehicles for doing so are all likely to be non-cash vehicles. Here are some of the more tax-efficient and flexible ways to give:

Stock Donations

Donating appreciated securities that you’ve held for more than one year can provide a significant tax benefit. This is because the capital gains tax on securities held more than one year may be as high as 20% and can also be subject to an additional 3.8% surtax on net investment income once adjusted gross income (AGI) exceeds $200,000 single/$250,000 married. You can avoid these taxes by donating the stock instead.

You also can save on income taxes if you itemize deductions, because you can take a deduction for fair market value when gifting appreciated securities (long term capital gain property). Your donation goes farther because non-profit Internal Revenue Code Section 501(c)(3) organizations are tax-exempt and won’t have to pay capital gains taxes on the sale.

An added bonus: You can reset your cost basis, which may allow for even more tax savings in the future. If you want to continue to own the stock you donated, you can simply buy it back with the cash you would have otherwise given to charity.

Qualified Charitable Distributions

If you need to take required minimum distributions (RMDs) from your IRA, making qualified charitable distributions (QCDs) is a smart way to give to charity while minimizing taxable income.

RMDs can be a headache for some retirees. You are required to withdraw money that you don’t need for living expenses (and must pay tax on it in the process). QCDs can help alleviate that problem and also help you with your charitable goals.

Making a QCD can count toward your RMD for the year, allowing you to meet your RMD requirement by donating all or part of it, all while avoiding income tax on the withdrawal. Anyone who is 70 ½ or older can make as many QCDs as they want, up to $100,000 a year; however, contributions made to an IRA after 70 ½ can reduce the amount allowed to be claimed as a QCD.

QCDs are an increasingly popular and powerful tax-saving tool because they can benefit all taxpayers who qualify, regardless of whether they itemize deductions or take the standard deduction. To make a QCD, contact your Shakespeare advisor to discuss the options available to you and the rules around the timing of donations.

Donor-Advised Funds

Donor-advised funds (DAFs) are private investment accounts established by an individual and managed by a third party to benefit one or more non-profits. Assets invested in a DAF can include cash, stocks and even cryptocurrency. Donors who establish a DAF have advisory rights and can recommend grants from the fund over time to benefit particular projects for their favorite charities.

DAFs are a great option if you want to make thoughtful gifts over a long period of time while also enjoying tax benefits. Any contributions to a DAF can qualify for an income tax deduction in the year the contribution is made.

Cryptocurrency Donations

Many people overlook the fact that they need to pay capital gains tax on their crypto earnings, just like you would when you sell appreciated stock. One way to offset these taxes (or avoid them altogether) is to donate your crypto to a non-profit.

Crypto donations have the same tax benefits as charitable stock gifts. You avoid capital gains tax and can take a deduction for the fair market value of the donation if you itemize deductions and meet the other general deductibility rules.

There are thousands of cryptocurrencies (coins) currently in existence, and new ones are created every day. Non-profits that support crypto donations may only accept larger mainstream coins, like Bitcoin and Ethereum. These non-profits will often have a platform on (or accessible from) their website where you can complete the transfer. There are also third-party sites that let people easily donate to any charity.

The Bottom Line

If you are interested in charitable giving, consider an alternative to cash giving. It is often smarter to donate pre-tax whenever possible. Donating other, less liquid assets is a great way to make a difference, and often receive a tax benefit without taking away from your regular cash flow.

To make a stock donation, QCD, or set up a donor-advised fund, contact your Shakespeare advisor to get the process started.