By Financial Advisor Carrie McDonnell | May 22, 2023
"I have found that among its other benefits, giving liberates the soul of the giver."
~ Maya Angelou
As many of us know, giving can be beneficial to both the recipient and the giver. Not only are many charitable organizations dependent on the generosity of donors to operate their services, but the act of giving can be empowering for donors too. In fact studies suggest a multitude of emotional and physical benefits are tied to giving.1 In this short article, we’ll explore another way in which charitable giving can benefit donors by way of reducing taxable income.
As it would seem, a growing number of people could benefit. Americans have given more in the last three years than ever before. Perhaps due to the “unprecedented” events of recent—from the COVID-19 pandemic to natural disasters to racial injustices—charitable giving in 2020 soared to a record-breaking $471 billion, a 5.1% increase over 2019. Interestingly, instead of returning to pre-pandemic levels, philanthropic activity continued to soar in 2021, increasing by 4%. And in 2022—considering it was the worst year for U.S. stock markets since 2008—one would expect a slowing of generosity. Yet philanthropic giving remained heightened, suggesting that Americans respond with philanthropy during challenging times.2
Learning how to leverage tax strategies as an added benefit to charitable giving, or even as a primary goal, could be important to maintaining high levels of philanthropic giving in the years ahead.
Below are a handful of strategies that you may find helpful when making your next donation.
When making a donation to your favorite charity, consider donating appreciated non-cash assets instead of cash. Donating appreciated securities or other non-cash assets held more than a year means donors can eliminate the capital gains tax they would otherwise incur if they sold the assets and donated cash. Not only that, when filing taxes, donors can claim a charitable deduction for the fair market value of the assets.
This strategy can also come into play at rebalancing time in a taxable account. Instead of selling positions to rebalance original asset allocation, you can donate shares to reduce or eliminate the taxes you would owe.
Talk to a financial advisor about which charitable giving strategies are right for you.
1. news.harvard.edu/gazette/story/2008/04/money-spent-on-others-can-buy-happiness/
2. advisorservices.schwab.com/insights-hub/perspectives/charitable_tax_strategies
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