Do you have stocks on which you have unrealized capital gains and are ready to sell them?
Do you have stocks that increased in value, and you'd like to keep them, but with a higher cost basis, so you don't get hit with a capital gain when selling them? There is a 100% legal way to do just that!
Donating stocks that increased in value substantially is one of the most tax-smart ways to give charity, especially when you plan to give charity every year anyway.
How does this work?
It’s simple and easy. When you donate stocks to charity, you will generally take a tax deduction for the total fair market value. If you prefer to donate bonds or mutual funds, the same benefits will apply. So instead of simply giving charitable donations using your personal funds, you can give charity through donating your stocks.
This can be explained in the following example:
You purchased 15 shares of Tesla in early 2020 at $88 a share for a total of $1,320. The current market value of these shares is $16,155. Your charity goals for this year are $20,000. Instead of depositing $20,000 from your personal funds to the Donor Advised Fund (DAF), you only deposit $3,845 out of pocket; the remaining $16,155 will come in the form of donating the 15 shares with a current market value of $16,155. You can now use the full $20,000 as a charitable deduction.
Now that your Donor Advised Fund (DAF) has a total value of $20,000, you can use the original $16,155 that you had previously designated to charity, to repurchase the same stock with a new basis of $16,155. There are no wash sales involved since you never actually sold the stocks.
This can be done with all major investment brokers such as Schwab Charitable, Fidelity Investment, etc., as well as the faith-based DAF such as OJC and The Donors Fund.
Tax planning can be complex, so make sure to discuss this with a tax professional. To discuss tax planning strategies with one of our dedicated tax professionals, please reach out to us here.
