“…family giving offers an opportunity to exercise human excellence.” – From The Cycle of the Gift, by Hughes, Massenzio, and Whitaker, 2013
by Kevin Margolis | Contributor
Charitable giving can be immensely rewarding personally; many of us have a cause we support, and in 2014, Americans donated $358.8 billion to charity. Charitable giving also has some great tax benefits, but there is a smart way to give.
In many cases, a direct, cash contribution is not necessarily the best way to go. As a family approaches the end of the year, they may have certain funds in mind to contribute to a charity. Though cash donations have substantial tax benefits, sometimes there are other avenues to consider before making a decision. For example, the donation of highly-appreciated assets such as stocks might be a better choice for the charity and for you. Consider this scenario; perhaps you purchased stock at $5,000 (make sure that the stock you are considering has been owned for over one year) that has now appreciated to $10,000. You can donate the stock at the $10,000 value for tax purposes and then reinvest the cash you were going to give to the charity into the same security/investment to establish a higher cost basis for the investment. You get the $10,000 charitable deduction, you don’t have to recognize the capital gain on the investment, and the charity gets a substantial donation.
Another vehicle to consider for charitable donations is a donor-advised fund (DAF), which is administered by a public charity to manage donations on behalf of its contributors and grant funds to non-profit organizations. A contribution to a donor-advised fund can facilitate cash or non-cash contributions. In the Dallas area, the Communities Foundation, the Dallas Foundation, and the Dallas Jewish Community Foundation are all very respected DAFs. The donations are administered by the foundation and allow the donor to direct the funds to the charities of their choice over time, although the tax deduction for the donation is immediate.
Again, if the donation is made in the form of appreciated securities, you avoid capital gains tax, but if you do make the donation in cash, you still can include the cash contribution as a charitable deduction on your tax return. Donations to donor-advised funds do carry administrative and investment fees, so it’s always best to meet with your advisor to determine if donor-advised funds are the best fit for you.
Investment in a DAF can also create the culture of “legacy giving” in a family. Talk about philanthropy with your children and grandchildren and tell them why your causes are important to you. Those are lessons that are truly priceless.
Kevin W. Margolis CPA/PFS is a wealth manager and a Managing Director with SFMG Wealth Advisors. He has over 25 years of expertise in financial, tax, and business consulting. He is a member of the AICPA, Dallas Estate Planning Council, the Financial Planning Association (FPA), and The National Association of Personal Financial Advisors (NAPFA). Reach Kevin at Kevin@SFMG.com or 972.960.6460.
NOTE: Please consult with your tax and/or financial advisor before taking these recommendations. SFMG is not a CPA firm.