Giving creates positive change in people, institutions, and communities. It sustains a multitude of valuable organizations. It launches innovative new programs and services. Whatever your inspiration, it’s likely you’ll get something out of giving too. Hope. A feeling of goodwill. A sense of community and common ground. Maybe even save a little (or a lot) on taxes. A study conducted by researchers at the University of British Columbia and Harvard Business School found that “spending money on others promotes happiness more than spending money on oneself.”

We have experienced an incredible market recovery. From our COVID bottom (2192) on 3/23 to the close of 1Q21 (3992) the S&P 500 has returned just over 45%. Investors that remained in the market during our 22 (trading) day bottoming, found their investments at all-time highs just 126 trading days later. However, those that pulled their money out of the market would have experienced a different outcome. Some suffered losses, and others are still sitting with cash on the sidelines trying to figure out their next move.

Investors that remained in the market now face the positive challenge of managing their capital gains. Depending on income and the duration the investment was held, the gains could be taxed as low as 15% and as high as your ordinary income tax rate. It is also worth considering potential tax hikes proposed by the new White House Administration. Now could be a good time for you to evaluate your own giving and consider new ways to support the causes you care about while also taking advantage of the financial benefits available to those who give. With the tax deadline extended to May 17th, you may still be thinking about how to reduce your income taxes. Depending on your tax bracket and whether or not you itemize, you may be able to lower your tax bill – possibly significantly – by making a charitable contribution. It generally makes sense to try to make multiple and/or more sizable charitable contributions in the years you have the highest income or highly appreciated securities. You may even consider making advance contributions if your income is expected to drop in the next year or two. There are several alternatives that may significantly lighten your income tax burden while supporting a favorite charity.

GIVE A GIFT OF SECURITIES

While gifts of cash are simple to make and fully deductible, gifts of securities are frequently the most advantageous donation from a tax perspective. Contributing long-term, appreciated securities to a donor-advised fund allows you to avoid paying capital gains tax. In addition, you still receive an income tax deduction equal to the full fair market value of the security at the time it is contributed. Gifts of long-term, appreciated securities are fully deductible up to a maximum of 30% of your adjusted gross income.

 EXAMPLE

Amount invested $5,000
Current value $25,000
Stock contribution amount $25,000
Charitable deduction $25,000
Capital gain avoided $20,000
  • This is a hypothetical example for illustration purposes only. Actual investor results will vary
There is a myriad of charitable vehicles and methods to choose from. Some are simple and straightforward, like outright gifting, while others are more complex, but also potentially more impactful, like charitable remainder trusts, charitable lead trusts, donor-advised funds, and private foundations. It’s important to remember your near- and long-term lifestyle expectations when planning for your charitable goals. Because everyone’s tax situation is unique, you should discuss your gift plans with your financial advisor and tax professional before making any contributions.

By Joshua Loud Josh is a Financial Advisor, Accredited Asset Management Specialist, and Certified Exit Planning Advisor with Raymond James & Associates