Do you write checks each year to any charities? If so, you might be losing money to the IRS. Many individuals donate to their favorite charities each year and take a tax deduction for the amount donated. Sounds like a good deal, right? You donate to a cause that is important to you and the IRS allows you to take a deduction on the gift. However, in some cases this is an inefficient way to donate. If you own assets such as stocks, bonds, mutual funds or real estate that have appreciated in value, you may have an opportunity to save even more on taxes, providing increased donations with no additional cost. Here’s how…
Scenario One: Say you own $50,000 of Apple stock that has doubled in value since your purchase date. $25,000 is your principal and $25,000 is your profit. Additionally, let’s assume you want to donate $50,000 to charity. You could sell your Apple stock resulting in a tax of $3,750 (15% of the $25,000 profit). Then make a $50,000 tax deductible donation to charity. The end result: $50,000 tax deduction and $3,750 in taxes due.
Scenario Two: Instead of selling your Apple stock, you can gift the stock to your preferred charity or to a charitable account that you direct. Once transferred, the shares can be sold by the charity with no taxes due. Furthermore, you receive a full deduction for the $50,000 gift. The end result: $50,000 tax deduction with no income taxes due. A total tax savings of $3,750 vs. Scenario One.
Many individuals miss out on these valuable tax savings each year, and in some cases are gifting millions to charity and not maximizing their income tax planning opportunities. You can establish a charitable account that gives you the option of donating today (cash or securities) with a full income tax deduction, but choose where to send the money at a later date. You can even decide how the money is invested in the meantime. Furthermore, these accounts can be established with no upfront administrative cost. It’s almost like having a private foundation without the increased expenses. With tax rates increasing in 2013, it is very important to meet with an expert advisor to review the various options available to you and how they impact your overall financial strategy.
Prior to investing, you should consult a financial advisor and read all available information. The examples given are hypothetical, for illustrative purposes only. The product features mentioned must be sold by prospectus and carry investment risk. Investment advisory services offered through Verde Wealth Group, LLC, a state registered investment advisor. Securities offered through ValMark Securities, Inc. Member FINRA, SIPC. 130 Springside Drive, Suite 300, Akron, Ohio 44333–2431. 1–800-765‑5201. Verde Wealth Group, LLC is a separate entity from ValMark Securities, Inc. © 2016 Verde Wealth Group, LLC. All rights reserved. This article was initially published on September 19, 2012. Any tax information contained herein is of a general nature and is not intended for public circulation. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein.