The Charitable Double Benefit
- Give generously, but also give smartly.
- There are a myriad of tax-advantaged ways to give to organizations and causes you support.
- Planned giving can get complicated, so consider hiring an estate planner, wealth manager or other seasoned financial professional to help you find the technique that best suits your needs.
A recent study showed that about one-third of families with at least $1 million in investible assets want to do some kind of charitable giving. Here we are in the fourth calendar quarter of the year, when the majority of charitable giving takes place – especially around the holidays. Let’s say that your church or synagogue is running a capital campaign and they’d like you to donate $10,000. It may sound like a lot of money to many people, but suppose you have a stock that you bought many years ago for $2,000, and now it’s worth $10,000 – i.e., it has appreciated by $8,000. You can sell the stock and give your house of worship your $10,000 in proceeds.
But there are other ways to make the same gift that are more tax advantageous for you. For instance, in the previous example, you would incur an $8,000 capital gain. If you’re in the highest tax bracket, you’re looking at 24 percent federal tax, or $1,900. We’d like to try to avoid that. Instead, you could take that $10,000 worth of stock and gift it directly to your church, synagogue or other charity and that (not-for-profit) organization could sell it. It won’t have to pay any tax on the sale of the stock you gifted to it.
There are several benefits for you as well:
- You avoid the $1,900 in capital gains taxes.
- If you’re in the highest tax bracket, you’ll have a federal tax deduction worth about 40 percent – that’s $4,000.
Taken together, the real cost to you is about $4,100:
That’s a great benefit and, by the way, your church or not-for-profit has the full $10,000 for its capital campaign.
– $4,000 Tax Deduction
– $1,900 Avoided Taxes
$4,100 Actual Cost
I took a somewhat simple situation here and showed you a different way of doing it. In charitable gift planning, there are many lifetime benefits that help you and your family, while also helping charity. The same benefits are available for bequests made upon your death, where a direct donation can help both your family and charity.
There are many types of planned giving instruments, such as charitable trusts, donor-advised funds, private foundations and charitable lead trusts that can be specifically tailored to your needs. However, understanding these choices can be challenging, so consider hiring an estate planning attorney or other professional who specializes in these matters, typically in the wealth management area, to help you make a really good, smart decision about your charitable giving.
Until next time, enjoy.
Inertia, often caused by being overwhelmed, keeps smart people from planning. TransformingWealth™ , Coyle’s proprietary approach, is designed to get your arms around the big picture so you can make informed financial decisions. Take the first step to living the Good Life Managed Well™, and schedule a complimentary TransformingWealth Preview Meeting.
Gary Klaben is in our Glenview, IL office and serves our clients who are now located all over the country. He has over 30 years of experience and is the author of Changing the Conversation, The Wealth Sanctuary and co-author of The Business Battlefield. Whether advising his clients, mentoring his team, or coaching entrepreneurs, he is always simplifying complexity and motivating others to take the next action that’s right for them.
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