Giving is
It is driven by seeing a need and really feeling our own abundance and lack of need; “I lack nothing”. I grew up in an environment where you gave cheerfully, recognizing you have been given so much more than what could ever be given by solely human means.
Of course, giving costs you. However, CRA has made it cost you much less than what you are giving. This tax savings percentage of what you give really only starts to be significant when you give more than just a few hundred dollars per year.
, whether it be of your time or money, is filling a need whefeels good. When you see a need
When it comes to charitable giving, many people instinctively reach for their wallets to donate cash. However, donating investments, such as stocks or mutual funds, can be a more impactful and beneficial way to support your favorite causes. Here are several compelling reasons why you should consider donating investments instead of cash, along with a numerical comparison to illustrate the benefits.
1. Tax Benefits
One of the most significant advantages of donating investments is the potential tax benefits. When you donate appreciated securities that you’ve held for more than a year, you can avoid paying capital gains tax on the increase in value. Additionally, you can claim a charitable deduction for the full fair market value of the donated securities. This double tax benefit can make your donation more cost-effective.
Example:
- Appreciated Stock Value: $10,000
- Original Purchase Price: $5,000
- Capital Gain: $5,000
- Capital Gains Tax Rate: 20%
If you sell the stock and donate the cash:
- Capital Gains Tax Paid: $1,000 (20% of $5,000)
- Cash Donation: $9,000
- Charitable Deduction: $9,000
If you donate the stock directly:
- Capital Gains Tax Paid: $0
- Stock Donation: $10,000
- Charitable Deduction: $10,000
By donating the stock directly, you avoid the $1,000 capital gains tax and can claim a higher charitable deduction.
2. Maximize Your Impact
By donating investments, you can potentially give more to the charity than if you sold the investments and donated the cash proceeds. This is because the charity receives the full value of the securities without having to pay taxes on the gains. As a result, your contribution can have a greater impact on the organization’s mission.
Example:
- Cash Donation: $9,000
- Stock Donation: $10,000
The charity receives $1,000 more with the stock donation, allowing them to do more with your contribution.
3. Simplify Your Portfolio
Donating investments can be a strategic way to rebalance your portfolio. If you have stocks or mutual funds that have significantly appreciated, donating them can help you reduce your exposure to a single asset or sector without incurring capital gains taxes. This can be an effective way to manage risk and maintain a diversified investment portfolio.
Example:
- Current Portfolio Value: $100,000
- Appreciated Stock Value: $10,000 (10% of portfolio)
- Target Allocation: 5% in the same stock
By donating the $10,000 stock, you can reduce your exposure and rebalance your portfolio without selling and incurring taxes.
4. Support Causes You Care About
Donating investments allows you to support the causes you care about in a meaningful way. Many charities are equipped to handle donations of securities and can put them to good use immediately. By providing financial support through investments, you can help ensure that the organizations you care about have the resources they need to continue their important work.
5. Leave a Legacy
For those looking to leave a lasting legacy, donating investments can be an excellent option. By including charitable donations of securities in your estate planning, you can make a significant impact on the causes you care about while also potentially reducing the tax burden on your estate. This can be a powerful way to ensure that your values and priorities are reflected in your legacy.
Conclusion
While cash donations are always appreciated, donating investments can offer unique advantages that make your charitable giving more effective and impactful. By taking advantage of tax benefits, maximizing your contribution, simplifying your portfolio, supporting important causes, and leaving a legacy, you can make a meaningful difference in the world. Consider speaking with a financial advisor or tax professional to explore how donating investments can fit into your overall charitable giving strategy.
