A potentially powerful tool for planning your annual income tax return and later estate taxes is the charitable contribution. A charitable contribution is a donation that can be made to a qualified charity. The benefit of making a charitable contribution, in addition to helping an organization or certain people out with needs they have, is that the person making the donation can receive a tax deduction. The tax deduction will help lower the taxable income of the taxpayer and thus lower the amount of tax owed. Read ahead for a little more detail, but keep in mind that this article is for informational purposes only and is not a replacement for personal financial advice. Be sure to consult your tax, legal, and accounting professionals before modifying your gift-giving strategy.
Making a Charitable Contribution
Smart moves can help you manage your taxable income and taxable estate. If you're making a charitable gift, giving appreciated securities that you have held for at least a year is one choice to consider. In addition to you receiving a potential tax deduction for the fair market value of the asset in the year of the donation, the charity may be able to sell the stock later without triggering capital gains.
Making gifts of shares may be a good tax strategy for you. Why sell shares when you can gift them? If you have appreciated stocks in your portfolio, you might want to consider donating those shares to charity rather than selling them.
Donating appreciated securities to a tax-exempt charity may allow you to manage your taxes and benefit the charity. If you have held the stock for more than a year, you may be able to deduct the fair market value of the stock from your taxes in the year that you donate. If the charity is tax-exempt, it may not face capital gains tax on the stock if it sells it in the future.
When is donating stock a better choice than gifting cash or just selling the shares? There are several reasons to consider donating highly appreciated stock to a tax-exempt charity. For example, you may own company stock and have the opportunity to donate some shares. There are also potential tax benefits to consider if you donate appreciated securities that you have owned for at least one year.
If you sell shares of appreciated stock from a taxable account and subsequently donate the proceeds from the sale to charity, you may face capital gains tax on any potential gain you realize, which effectively trims the tax benefit of cash donation.
When is Donating Cash a Choice to Consider?
If you donate shares of depreciated stock from a taxable account to a charity, you can only deduct their current value, not the value they had when you originally bought them.
Remember the Tax Rules for Charitable Donations.
If you want to donate appreciated stock to a charity, double-check to see that the charity has non-profit status under federal tax law and be sure to record the deduction on a Schedule A that you attach to your 1040.
If your contribution totals $250 or more, the donation(s) must be recorded; that is, the charity needs to give you a written statement describing the donation and its value and whether it is providing you with goods or services in exchange for it. A bank record or even payroll deduction record can also denote the contribution.
Gifting cash or securities to an organization is a wonderful opportunity. But keep in mind that tax rules are constantly being adjusted, and there's a possibility that the current rules may change. Make certain that you consult your tax, legal, and accounting professionals before starting a new gifting strategy if you intend to use the gift as a tax deduction.
Taxes themselves can be complicated, and finding ways to lower your tax liability increased the complexity of taxes even more. Escient Financial is able to help clients navigate tax complexities with tax planning and coordinating with your tax, legal, and accounting professionals. Feel free to...
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Digital assets and cryptocurrencies are highly volatile and could present an increased risk to an investors portfolio. The future of digital assets and cryptocurrencies is uncertain and highly speculative and should be considered only by investors willing and able to take on the risk and potentially endure substantial loss. Nothing in this content is to be considered advice to purchase or invest in digital assets or cryptocurrencies.
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