This Overlooked Strategy Saves Taxes and Lets You Be Charitable at End of Year
Written by
Jordan Rosenfeld
Edited by
Zuri Anderson
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As you gear up at the end of year to prepare for your taxes, it’s good to look for ways to limit any potential tax liability, especially if you make income outside of a standard W-2 employment job.
For people who also like to engage in charitable giving, there’s an overlooked strategy that could achieve both aims. Gifting some of your stocks is a way to cut your tax bill but also support a nonprofit organization or charitable cause.
Hao Dang, an investment strategist with Concilio Wealth Advisors, explained how it works.
“If you’re charitably inclined and you’re lucky enough to be in a position to hold highly-appreciated assets, I would look in December for ways to give or donate to charities,” he said.
“It’s an important thing selfishly for taxes, but for society, it’s also a really great consideration.”
You Must Donate to a Nonprofit Entity
The first thing to know in order to get any sort of tax write-off for donating stocks is that it must be to an entity with a nonprofit status, whether that’s a charitable organization or a church.
“Because they have tax free status or they’re not taxed, they can take your stock and sell it, and they’re not taxed and then you have the write off,” Dang said.
How Do You Write Off Stock?
So just how does the write off work? Dang said that if you own Apple stock, for example, which you bought originally for $100, and now it is worth $1,000, you normally have to pay capital gains tax of around 15% on the $900 you earned.
“So when you donate that $1,000 worth of Apple stock, you are not selling anything, so you’re not taxed any gains,” he said. “And then the value of your write off is now $1,000 in terms of what the IRS sees. So now you can write off or lower your liability by $1,000.”
A Great Way To Free Up Charitable Funds
Looking to stock that has gained in value could be a much easier way of finding money to donate if charitable giving is an important part of your philosophy but you don’t have a lot of fluid cash.
Know Your Limits
Of course, there are limits on how much you can write off. Stocks that have gained in value are known as “appreciated non-cash assets,” and you can only write off up to 30% of your adjusted gross income (AGI).
However, if your charitable donation is above that amount, you may be able to take advantage of a five-year carryover option the IRS offers. Talking with an accountant before you make this move is a wise plan.
“If you make $100,000 per year, you can’t donate $100,000 worth of stock to get no taxes,” Dang pointed out.
If you’ve invested in stocks that are gaining in value, this is a great end of year strategy that benefits you and a charitable cause.
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