With the stock market hitting record highs and many anticipating changes to the tax code under the Trump administration, there has been a rise in charitable donations of stocks. A recent Wall Street Journal article takes a look at investors’ motivations and the potential benefits or pitfalls.
On the campaign trail, Trump promised to lower taxes, simplify the tax code and change the limits on itemized deductions. With a Republican-controlled House, Senate and presidency, many believe he’ll be able to accomplish this and are planning accordingly. If Trump succeeds, the value of tax deductions for charitable donations could be less significant as early as 2017, depending on the legislation passed and the date it goes into effect.
With these and other tax changes possibly on the horizon, many investors see stock donations as the better alternative to cash. By donating stock, they receive a tax deduction for the full market value of the stock and are not subject to capital gains tax. For highly appreciated stock, that’s a big bonus.
For stocks that have lost value, that’s not the case. In fact, if an investor sold stock at a loss and donated the proceeds of the sale, it could be the best option. In that case, the loss can be written off to minimize other capital gains.
For those who want to make a charitable donation, but don’t know what charity to support, a donor-advised fund is becoming a popular option. Some asset management firms, such as Fidelity, Vanguard and Charles Schwab for example, offer donor-advised funds as a way for investors to donate stock now—and reap the tax deductible reward—but decide how to distribute the funds later.
The day stock moves into the fund, it counts as a donation for tax purposes. And you can add additional stock at a later date for another tax deduction. However, since it can take several days to transfer stock into the fund, the sooner you start planning, the better. December 31st is the deadline to receive confirmation of the transfer if you want to apply the deduction to your 2016 taxes.
If you want to look into the benefits of a donor-advised fund, talk to your financial professionals. For more information on charitable planning and its impact on your estate, explore our website and contact us to schedule your consultation today!
Reference: Wall Street Journal (December 11, 2016) “Why More Investors Are Donating Stock to Charity”