Monday, December 6, 2021

Pay It Forward

Ask the CFP


“What sculpture is to a block or marble, education is to the human soul.” ~ Joseph Addison (1672-1719) English Essayist and Poet


Question: We have been fortunate enough to accumulate unrealized gains on several investments. Knowing that that local non-profit organizations and charities have suffered insurmountable disruption and financial setbacks this past year due to COVID-19, what are the best ways to use our gains for their benefit?   

Answer: Donating appreciated equity can be a gift for both you and your favorite charity.


 

For some investors, 2020 may have provided increases in net worth allowing them to give back to organizations and charities that mean the most to them.  It’s often an appropriate time to get your portfolio in shape and diversify where necessary as well.

Consider this: donating long-term appreciated securities has the potential to help you realign your portfolio and give back tax-efficiently to the causes you care about. When done right, your donation may have an even greater impact for the lucky recipient.

A gift for them, a (tax) break for you

Donating appreciated stock offers several benefits – chief among them, the ability to make a larger value donation than giving cash after liquidating. You can avoid capital gains tax on the appreciated amount that you would have incurred had you sold the stock, and you get a tax deduction for the full fair market value of your long-term capital gain asset – up to 30 percent of your adjusted gross income. Plus, as mentioned earlier, it’s a way to reduce a concentrated equity position and help bring your portfolio back in line with your goals.

Here are four benefits of donating appreciated stock:

  1. The tax deduction for the market value of the donation.
  2. Federal capital gains taxes savings in the amount you otherwise would have incurred from selling the stock outright.
  3. An opportunity to rebalance your portfolio in line with your financial plan.
  4. The ability to benefit a charity by the full appreciated amount of the stock.

Gifting stock to a donor advised fund (DAF)

Donating to a charitable DAF tacks on another great benefit: the potential to grow your donation, tax-free. Donors use the fund as a financial planning tool to enhance their charitable giving. According to your recommendations, the fund – a charity in and of itself – then distributes the contributions to approved 501(c) (3) organizations over time. Additional benefits of DAFs include the ability to make contributions whenever you please and claim the tax deduction when it works best for you and your financial plan, as well as providing an easy and cost-efficient way to get multiple generations involved in your family’s philanthropic endeavors.

Submitted Photo

A bunching strategy can also work particularly well with DAFs. If you’re charitably inclined but won’t have sufficient itemized deductions to exceed the increased standard deduction, you may wish to bunch deductions by making a large charitable gift during a single year, equal to the total donations you would have made over several years. This can help you take advantage of itemizing in the year of your large donation, while taking the standard deduction in future years.

There are several factors to take into account when deciding how best to share your wealth. Your CERTIFIED FINANCIAL PLANNING™ professional can walk through the many options with you to find the best path for you, your family, and your financial plan. Stay focused and plan accordingly. 

Sources: forbes.com, wsj.com, jasandiego.org, investopedia.com.

Diversification does not guarantee a profit nor protect against loss. The process of rebalancing may result in tax consequences. This material is not intended as tax advice. Please consult your tax advisor for further information. Donors are urged to consult their attorneys, accountants, or tax advisors with respect to questions relating to the deductibility of various types of contributions to a donor advised fund for federal and state tax purposes. To learn more about the potential risks and benefits of donor advised funds, please contact Raymond James. The opinions expressed are those of the writer as of April 18, 2021 but not necessarily those of Raymond James and Associates, and subject to change at any time. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed.  Prior to making an investment decision, please consult with your financial advisor about your individual situation.

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.” 

This article provided by Darcie Guerin, CFP®, First Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at (239)389-1041, email darcie.guerin@raymondjames.com Website: www.raymondjames.com/Darcie.

 


 

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