Insights for Non-Profits

As we enter the homestretch of 2016, many endowments and foundations are preparing their year-end fundraising campaigns or planning for next year’s strategies. The holiday season reminds us of year-end charitable gift giving, the time for donors to make their year-end contributions by December 31st in order to take advantage of charitable deductions. However, many donors who write checks or donate cash may not be making the wisest gift, from a tax-efficiency perspective, to their favorite charities.

Some donors may hold shares of stock within their portfolios that have appreciated in value and may consider using these assets to make their year-end contributions as an alternative to giving outright cash gifts. These unrealized gains present an opportunity for donors to take advantage of tax laws that encourage charitable gifts of appreciated assets. Gifting appreciated stock directly to charitable organizations, as opposed to selling the assets and donating the after-tax cash proceeds, can significantly increase the value of a donor’s gift while also providing them with a larger tax benefit.

A Tax-Efficient Method of Giving

When donors are considering making their year-end contribution using appreciated securities (i.e. stocks, bonds, mutual funds, etc.) that have been held for over a year; they can take advantage of two key tax provisions. Firstly, donating these securities directly to a charity allows the donor to take a charitable tax deduction on their Federal income taxes for the full market value of the securities. These gifts are generally deductible up to 30% of donor’s adjusted gross income. Second, by donating the securities to the charity instead of selling the securities and donating the proceeds, the donor will pay no capital gains tax on the price appreciation of the securities and can eliminate any potential tax liability.

The table below compares the tax savings for a donor who sells shares of stock and donates the net proceeds versus donating stock directly to a charity. Here's an example of what the numbers might look like for a donor if they are in the 25% income tax bracket and want to donate $10,000 worth of stock purchased ten years ago for $2,000 to their favorite charitable organization.

As the table shows, when donating securities directly, a donor can eliminate capital gains tax, realize a larger charitable deduction, and increase income tax savings by making a larger gift. If an organization’s donors are looking to maximize the power of their charitable contributions in order to make the greatest impact to the charitable causes they care about, non-profit organizations should promote this tax savings opportunity and encourage donors to consider giving long-term appreciated securities.

As non-profit organizations are preparing their year-end solicitations, they may want to focus on the messaging to their donors that stresses the impact previous gifts have had on its mission within the community, and how making a charitable gift using appreciated securities can provide considerable tax incentives to their donor base. By providing donors with alternative gifting options to the more common cash and check donations, organizations have an opportunity to increase their year-end fundraising by securing gifts of appreciated securities.

For more information on the charitable giving vehicles available to your donors, read our archived article, Charitable Giving in a Low Interest Rate Environment.

The information in this paper is not intended as legal or tax advice.