How You Can Help!
Many successful individuals and families are asked to give to any number of great causes. While it is relatively easy and almost second nature to simply write a check, there are other creative ways to give which may not only enhance the net benefit to the beneficiary, but also provide benefits to the donor. As opposed to simply writing a check, consider the following.
Gifting Appreciated Stock
Many successful investors have appreciated stock in their portfolio with potentially meaningful appreciation. This appreciation becomes a (capital gain) taxable event when sold, but if directly gifted to a qualified 501(C)3 organization such as The Patriot Fund, this tax is avoided by both the donor and the beneficiary.
- Donor –has the benefit of taking a tax deduction equal to the fair market value of the stock on the day it was gifted and the donor completely avoids the capital gains tax.
- Beneficiary – receives the stock and sells it at fair market value. A qualified 501(C)3 organization is exempt from capital gain taxation.
Donor-Advised Funds
Many successful and potentially philanthropic investors find an immediate need for a tax deduction to offset potentially capital gains and income tax exposure. Contributing appreciated stock to a Donor-Advised Fund allows donors to benefit by a current tax deduction while spreading the beneficiary gifts over time.
- Donor – has the benefit of realizing a greater current income tax deduction while not committing the entire value immediately. Gifts can be “advised” to the custodian over time.
- Custodian – there are many qualified donor-advised funds available at a number of Trust Companies. The Trust Company receives the granted stock, sells it without capital gain tax exposure, and on the advice of the donor, will make the distribution to qualified charitable organizations.
- Beneficiary – as with any gift, the beneficiary 501(C)3 organization is free from taxation and in this case, a number of beneficiaries may be funded over time.
Individual Retirement Account Distributions
For eligible IRA holders, a Qualified Charitable Distribution offers a powerful and tax efficient way to give. A QCD allows funds to be transferred directly from an Individual Retirement Account to a qualified nonprofit organization. Because the distribution never passes through the donor, the amount is excluded from taxable income.
Once required minimum distributions begin, QCDs may be used to satisfy all or part of that annual requirement, subject to IRS rules. This approach can be particularly effective for donors who give regularly, as it may reduce taxable income while supporting causes they care deeply about.
Family Foundation
For some families of greater charitable desire, considering a Family Foundation may provide opportunities similar to the Donor Advised Fund but with greater flexibility, control, and management. Such foundations are used to not only fulfill family philanthropic planning desires, but also to foster a legacy of such thought and strategy.
The Patriot Fund does not provide tax advice and is highlighting concepts and thoughts worthy of consideration. We recommend discussing your desires with your Financial Advisor and your Tax Advisor/CPA.