Maximizing Charitable Impact and Tax Benefits by Donating Stocks

Anticipate a pivotal event that will shape the future of fintech: Adam Nash, co-founder & CEO of Daffy.org, is slated to deliver insights at the upcoming Benzinga Fintech Deal Day & Awards. This not-to-be-missed conference will convene on Nov. 13, offering a venue for the exchange of innovative ideas within the fintech industry.

However, if charitable giving doesn't reflect your interests, feel free to disregard this discussion. But for the philanthropic among us—specifically, the 60 million American households who donate annually—read on to discover a strategic approach to charitable contributions that optimizes your impact and your tax savings.

The Smart Philanthropy: Donating Stocks Over Cash

Many donors are unaware of the significant tax advantages of donating securities like stocks, mutual funds, or ETFs instead of cash. When you make a charitable contribution to a qualified institution, not only can you deduct the full market value of the donated asset, but you also bypass the capital gains taxes you would incur if you were to sell the appreciated asset first. This dual benefit increases the efficiency of your philanthropic endeavors while optimizing your tax position.

Elevated Tax Efficiency with Appreciated Securities

Consider the example of a donor planning to give $20,000 in cash to a cause. Assuming they have appreciated shares of AAPL—purchased at $100 and now valued at $182.89 each—their donation in the form of 109 Apple shares would sidestep capital gains taxes, allowing the charity to receive the full benefit of the donation. Furthermore, if the donor repurchases those Apple shares with the same $20,000, their portfolio remains positioned to capitalize on potential growth, only now with an updated cost basis aligned with the current market value.

This principle is not limited to individual stocks. Shares of well-established indices like Vanguard Total Stock Market ETF VTI or technology firms like Alphabet Inc. GOOG, Apple Inc. AAPL, Dropbox, Inc. DBX, and eBay Inc. EBAY all fall under the same advantageous tax purview when donated after a year or more, provided they have appreciated in value.

The Role of Donor-Advised Funds (DAFs)

Despite the benefits, most charities are not equipped to handle donations of securities. This is where donor-advised funds shine. DAFs facilitate the donation of appreciated assets by allowing immediate tax deductions, subsequently selling the assets tax-free and enabling donors to direct the funds to the charities of their choice over time. While traditional DAFs have been geared towards affluent clients, modern iterations like Daffy.org have democratized this tool with lower fees and minimums, making it accessible to a broader audience of donors.

With the growing popularity of DAFs, exemplified by their 28.5% annual increase since 2017, the upcoming Benzinga Fintech Deal Day will shine a spotlight on these instruments as a means to support charities while optimizing tax benefits for donors across the spectrum of wealth.

Conclusion

In conclusion, next time you decide to support a charitable cause, consider the option of donating appreciated securities. This method not only maximizes the value of your donation but also offers a savvy financial strategy to reduce your tax bill. As evidenced by prominent companies and their stock performance, such as Apple, Alphabet (Google), and smaller players like Dropbox and eBay, the potential for appreciated stock donations exists across various sectors, enriching the philanthropic landscape with expanded possibilities for charitable giving.

philanthropy, investment, tax