The holidays bring out the best in mankind. We donate toys for less fortunate children. We volunteer at soup kitchens, halfway houses and shelters. We give our gently used clothing and household goods to organizations who use the revenue generated to fund training and employment services. We also take out our checkbooks. For many of us, December is the time of year we dig deep into our pockets to give our hard-earned dollars to a cause close to our heart. While that is all well and good, you should be sure the IRS isn’t the beneficiary of your generous gift.
I know, you’ve checked out your charity of choice. It’s a qualified 501(c)(3) organization that’s even listed on the IRS’ website. You’ve received your acknowledgement that will serve as a receipt for the gift. That’s not where the problem lies. The concern is that by writing that check, you could be giving after-tax dollars, when you could be giving a lot more.
Let’s say you intend to donate to “Angel Wings of Wounded Animal Amnesty and Children’s Education of Minority Military Heroes for the Blind Foundation.” If you couldn’t tell, that’s not a real charity, but that’s not the point. My point is in the numbers. Let’s say you give $1,000. You could write a check for $1,000. You’ve already been taxed on the money in your checking account as it likely came from your paycheck that had taxes withheld. Depending on your income, you’ve paid the IRS anywhere from 10% to 39.6% of your earnings.
But let’s say you have your money in investments. You bought shares of a stock years ago for about a quarter of what it is worth now. You could sell the investment, pay the tax on your capital gains then give the money to the charity. Again, the IRS is getting their cut—this time probably around 15%. If you’re in the top tax bracket, 20%. You could be selling nearly $1,200 in your investments to cover the taxes due to both the IRS and the state of Georgia just so you have $1,000 to give to a worthy cause. This doesn’t even count the 3.8% tax on investment income that those in the top tax brackets likely have to pay.
What you can do is donate the appreciated shares directly to the charity. Let’s say you invested $250 four years ago. Your investment has performed amazingly well, so your investment is now worth $1,000. Instead of selling the investment, you can gift your stock shares to the charitable organization. You receive a tax receipt for $1,000, the value of the gift the date you donated it. Keep in mind your gift of appreciated assets is generally deductible up to 30% of your adjusted gross income, so in this example, donating $1,000 in stock shouldn’t be a problem. Best of all, your charity of choice receives $1,000 to carry out its mission. Talk to your C.P.A. if you’re planning to donate several thousands of dollars in stock.
Charitable giving can save you in taxes. Why not do a little extra work and make sure your charity is getting the most out of the donation? Be sure to get the proper documentation from the charity, including the name of the charity, date of the contribution and a description of the appreciated assets donated. If you have questions regarding your RMDs the experts at Henssler Financial will be glad to help: