What Can I Give Away to Charity?
Have you ever wondered if you are giving to charitable causes in the most ideal fashion? Is there a way to fulfill your charitable intention with more material tax savings along the way? Whether your annual charitable giving totals $1,000 or $100,000, a strategic approach to what you give often serves to increase your impact beyond how much and how frequently you give. If you reduce your tax liability with your generosity, there is often opportunity for you to achieve more of your personal or giving goals along the way.
Many givers default to cash gifts through checks, credit cards, or electronic transfers because the process feels familiar and efficient. Strategy often stops there, even though superior options for gifting exist. What surprises many charitably-inclined individuals is the breadth of assets eligible for charitable giving and the planning advantages tied to each type of gift. Appreciated, publicly traded stock, mutual funds and Exchanged-Traded Funds, equity in a closely held business, cryptocurrency, valuable real estate, or tangible personal property are often forgotten as assets which may be donated. Appreciated assets frequently create taxable events when they are sold; however, appreciated assets donated to charity or to a Donor Advised Fund circumvent taxable gains. Understanding the full breadth of assets available for charitable giving opens the door for you to accomplish more material giving goals, potentially saving you thousands of dollars in taxes each year.
Assets You Can Give:
Cash – cash gifting offers simplicity and convenience. Cash works especially well for recurring gifts, emergency relief, “pop up” gifts, or a short-term giving campaign for a charity. Cash gifting also suits givers early in their wealth accumulation phase who may not yet have appreciated assets to give.
Stocks and Funds –giving highly appreciated stock, Exchanged-Traded Funds (ETFs), or mutual funds is a powerful, tax-efficient giving technique. Direct contribution of appreciated stock / funds to charity or a Donor Advised Fund often eliminates capital gain taxes, while generating a tax deduction based on the value of the gifted shares. Importantly, to achieve the optimal value for a gift of appreciated securities, the security must be held for more than one year.
Stock and fund gifting functions especially well for investors holding concentrated positions (too much allocated to one high-performing stock or fund) or legacy investments (stocks or funds received from inheritance or held for a meaningful period of time) with significant unrealized gains. Most charities can accept stock or fund gifts; or you can gift to a Donor-Advised Fund and dole the cash from the gift out to the charity from the Donor Advised Fund.
An example may prove edifying: suppose you have a revocable trust with $1 million in various individual equities. However, you bought semiconductor chip manufacturer Applied Materials (AMAT) at just the proper time: you bought $50,000 worth of shares and they are now valued at $200,000. You now have too much concentrated in one security (considering the need for proper diversification), but if you sold the shares, you would potentially pay federal tax of $35,700 on the $150,000 gain. If you gave the shares to charity, you would pay no tax on the capital gain and you would likely be able to deduct some or all of the gift as an itemized deduction on your tax return, reducing your taxable income. Obviously, charitable intentions are required to proceed with such a security gifting strategy, but giving appreciated stock or funds makes a powerful impact.
Unfortunately, we often meet investors whose advisors do not help them achieve important tax savings with the funds they are managing for their clients. Their advisors often focus solely on investment management or product sales, failing to encourage their clients toward prudent tax planning measures. Many people communicate with their advisor once per year or less, paying thousands of dollars in advisory fees without proper support for their charitable planning. If this is your situation or you personally manage appreciated, publicly traded investments, consider speaking with a member of our team with respect to how we could support you.Real Estate -real estate giving offers substantial charitable planning opportunities as well. Investment properties, real estate private funds, and undeveloped land are often excellent candidates for giving if they are highly appreciated and / or you depreciated them.
Consider an example: suppose you inherited a rental property. When you inherited the property, it was worth $100,000. Now that many “snowbirds” are moving south, the property is worth $2,000,000. You also depreciated the property, meaning each year you took an offset on your tax return against your basis (the $100,000 value when the property was inherited). If you sold the property, you would likely pay $452,200 in long-term capital gains tax and tens of thousands of dollars in depreciation recapture tax. In contrast, if you wanted to make a material charitable gift, you could use the real estate to fund the gift, generating a material tax deduction and mitigating the aforementioned capital gain and depreciation recapture income tax.Privately Held Business Interest -business ownership often results in concentrated wealth for the owner. Gifting a portion of ownership or all of the ownership in a business allows a business owner to achieve their charitable goals, while avoiding (significant) capital gains tax. If you are a business owner, strategically planning for giving away a portion of your company and further investigating a Donor Advised Fund to facilitate the gifting is prudent. If accomplished correctly, you can fund multiple years of charitable giving in one tax year to obtain a large tax deduction. By coordinating the gift with your business sale, you may materially decrease your recognized income (and resulting tax) on the sale. There are special rules requiring any gift to be completed before a Letter of Intent for a sale is completed, so consult with a trusted tax accountant and fee-only financial planner before making any major decisions.
Tangible Personal Property –if you own artwork, collectibles, vehicles, and equipment, each may be superior to gift relative to cash. Museums, universities, and community organizations often benefit directly if you give them artwork or collectibles. There are more limitations surrounding the gifting of tangible personal property relative to publicly traded securities, real estate, and businesses.
Your tax deduction for gifts of personal property may be limited to what you paid for the property unless the property is gifted specifically to a museum or charity specializing in the preservation of such property (i.e., you may only receive a deduction for actual value on appreciated artwork if you gift the art to an art museum). It is extremely important to exercise care with regard to how you gift tangible personal property to avoid a smaller deduction than you might appreciate.Cryptocurrency -digital assets continue to gain traction within charitable planning strategies. Cryptocurrency gifting mitigates capital gains taxation while generating a deduction based upon the fair market value. Many charities now accept direct crypto transfers. If you were an early adopter of cryptocurrency and possess a currency with a large, unrealized gain, gifting the currency in lieu of cash is often fruitful.
Complex Assets -intellectual property, patents, royalties, and goodwill are other specialized assets you may have opportunity to gift to charity. If you own a complex asset, the ongoing income or long-term licensing value may align ideally with your charitable giving goals. Strategic gifting requires careful structuring and coordination. When executed properly, complex assets unlock meaningful charitable leverage beyond traditional giving methods.
Your charitable giving strategy is important, as proper giving to accomplish your goals could reduce your tax burden by tens or even hundreds of thousands of dollars. Choosing non-cash assets to support generosity influences the financial outcome of your charitable efforts, potentially giving you more money “after-tax” to support your lifestyle, charities of interest, and the next generation. While cash fits as a method of gifting for those starting their giving journey, many folks with investible assets of $1 - $2 million+ or with incomes in excess of $200,000 experience more optimal gifting options.
A thoughtful review of your current giving habits, alongside the assets already owned, frequently reveals opportunities to give more effectively without reducing your level of generosity. In fact, you may unlock opportunities to give even more generously. Our team provides guidance surrounding asset selection for tax-considerate charitable giving. We regularly help the clients we serve implement on charitable intent so charitable giving aligns with long-term planning and values. Our conversation typically begins with understanding where you might like to give and your passion for giving. Thereafter, we explore the most optimal property or assets to gift, and which charitable giving vehicles might be most supportive of transitioning the wealth to charity for optimal tax savings. Take your next step by beginning to give appreciated property to causes of interest!
Co-Authors:
Jonathan McAlister, CFP®, CKA®
Justin Reede, CFP®, CKA®
Disclosure - The investment returns of investment securities are subject to various risks and are not guaranteed. Consult with an investment advisor representative for formal investment advice. For tax compliance advice, we recommend you consult with a CPA or Enrolled Agent. For legal advice, we recommend you consult with legal counsel. This blog post should not be considered investment or tax advice.