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Health & Fitness

Creative Giving the Alternative Way

Even though most people give to their church or favorite charity in the form of cash, did you know there are other creative strategies anybody can use that typically aren't top of mind?

Even though most people give to their church or favorite charity in the form of cash, did you know there are other creative strategies anybody can use that typically aren’t top of mind?

We can gain incredible peace by releasing our grip on what we’ve worked so hard to earn into an organization’s hands that we’re passionate about. Most people over time build up the desire to give more to their church or favorite charity. At the very least they’re committed to giving cash or property in the most efficient manner. Beyond a common cash gift, there are several non-traditional ways to support a non-profit organization to help them go further faster. Here are just a few…

1) Gifting Appreciated Stock to Charity
Did you know there are tax advantages to gifting appreciated stock to your church or favorite charity? If you’ve held a security for over a year, and it has increased in value, you can donate it, receive credit for a charitable contribution for the value at the time of the donation, and either reduce or eliminate the capital gains tax on the appreciated value.

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Example:

Here’s why it’s valuable:

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Let’s say you purchased 100 shares of your favorite corporation and paid $10,000 10 years ago. Today, if those 100 shares are worth $30,000 and you sell them, you would pay capital gains tax on the gain ($20,000). If you’re at the 15 percent rate, you’d pay $3,000 in taxes. At the time of donating the $30,000 proceeds to charity, they would receive the full amount in cash, and you’d receive the potential deduction on $30,000.

What if you could accomplish the exact same charitable giving and receive the full deduction without paying the capital gains tax? By donating the appreciated stock directly to the charity, you can still take the potential deduction for $30,000, the organization will immediately liquidate the position and have $30,000 in cash, and you don’t have to pay the capital gain tax!

This works well with a single or a few stocks because it’s easy to administer for the non-profit organization.

2) Mutual Funds and More
What if you have a mutual fund that has significantly grown in value that a charitable organization doesn’t have the capacity or desire to liquidate? Or what if you’re donating restricted stock, control stock, bonds, or complex assets, such as privately held C- and S-corp stock, limited partnership interests and certain publicly traded stock to charities?

The solution comes in the form of another contribution vehicle that has become popular in the past few years known as the donor advised fund. Many mutual fund companies have established these, and here’s how they function: An individual donates cash or appreciated securities to the “donor advised fund.” Usually, these funds require a minimum of at least $5,000. The contribution is irrevocable, meaning you’ve officially given up access to the funds. The donor gets a tax deduction for the value of the full contribution in the year it is made. The fund then invests and manages the contribution along with the rest of the monies within the fund. With a big enough donation, you can work with your advisor to even help pick the investment strategy.

The donor recommends what charities are to receive the contributions. The “donor advised fund” evaluates the recommendation and makes the contribution. The benefits of this approach include the ability to get an immediate deduction while the contributions, or grants, to the receiving charity are made later. In addition, the fund professionally manages the monies and handles much of the paperwork.

The Big Picture

These ideas can be deployed more often and with smaller dollar amounts than most people realize. Being a great steward of the wealth you’ve been entrusted not only applies to where you give but also how you give.

What other strategies have you used to support an organization you’re passionate about?

Editor's Note: Caleb Huftalin, CFP® serves clients by specializing in thorough and objective comprehensive financial advice at Catalyst Wealth Management.

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