With the holidays fast approaching, Will Wyman, Fogarty Institute Fundraising Consultant and Development Associate, offers insights on the advantages of year-end giving. Charitable donations are an excellent way to reduce your tax burden for the year, while allowing you to contribute a generous year-end gift to the greater good.
Will has more than 25 years of experience in fundraising, philanthropy, and endowment management serving a number of educational and environmental nonprofit organizations. Over the years, he has helped provide leadership on five capital campaigns for educational institutions, raising a cumulative total of over $50 million in support of a variety of innovative educational initiatives.
Many people think of gift-giving in terms of writing a check to a charity of choice, but there are more efficient and effective ways to give, especially when the stock market is strong with many stocks at all-time highs.
Q. Why should I consider year-end giving?
A. Year-end charitable giving can have a substantial impact on your tax situation. As you consider your charitable gifts between now and the end of the year, remember that gifts made now can generate income tax deductions that could help reduce your income tax bill. The amount you save depends on your tax rate and the portion of the gift you are allowed to deduct. Only gifts made by December 31st can help reduce the amount of taxes you will owe next April.
Q. What are the different giving options?
A. There are two year-end gift options that can maximize significant tax benefits which we recommend: gifts of appreciated securities and gifts from retirement plans.
- Gifts of Appreciated Securities
Smart gift planning combines charitable intent with cost-efficient planning techniques. Of critical importance is the kind of asset used to fund the gift. Usually, long-term appreciated property can generate the most favorable tax benefits. Reason: Gifts of such property provide a double benefit* — a charitable deduction, in most cases, for the full fair-market value of the property — plus avoidance of any potential capital-gain tax. The chart below illustrates the additional tax savings from a gift of appreciated assets.
| Cash | Appreciated Property | ||
| A. | Fair-Market Value | $10,000 | $10,000 |
| B. | Cost Basis | $10,000 | $4,000 |
| C. | Capital Gain | 0 | $6,000 |
| D. | Capital-Gain Tax (15%) | 0 | $900 |
| E. | Charitable Deduction | $10,000 | $10,000 |
| F. | Actual Tax Savings (28%) | $2,800 | $2,800 |
| G. | Total Tax Savings (D+F) | $2,800 | $3,700 |
- *For certain high-income taxpayers (singles above $200,000 and married above $250,000) additional savings may be realized by the avoidance of the 3.8% health care surtax on investment income.
- Gifts from Retirement Plans
Your retirement-plan benefits are very likely a significant portion of your net worth. And because of special tax considerations, they could make an excellent choice for funding a charitable gift. Retirement-plan benefits include assets held in individual retirement accounts (IRAs), 401(k) plans, profit-sharing plans, Keogh plans and 403(b) plans.
Q. What is the most desirable donation option and why?
A. Smart donors are always looking for ways to make their charitable dollars go farther and make a bigger impact on the causes they care about. Donating long-term appreciated securities directly to a deserving charitable organization, such as the Fogarty Institute, rather than selling the assets and then donating the cash proceeds, is one of the best and easiest ways for donors to give more. By taking advantage of the applicable tax incentives, donors can significantly increase the amount of funds available to them for charitable giving.
A charitable contribution of long-term appreciated securities — for example stocks, bonds and/or mutual funds that have realized significant appreciation over time — is one of the most tax-efficient ways to give. This method of giving has become increasingly popular in recent years because of two key advantages:
- Any long-term appreciated securities with unrealized gains (meaning they were purchased over a year ago, and have a current value greater than their original cost) may be donated to a public charity and a tax deduction taken for the full fair market value of the securities — up to 30 percent of the donor’s adjusted gross income.
- Since the securities are donated rather than sold, capital gains taxes from selling the securities no longer apply. The more appreciation the securities have, the greater the tax savings will be.
If you are looking to maximize the power of your charitable contributions — to make a single asset make more of a difference to the Fogarty Institute or other charitable causes you care about — consider donating your long-term appreciated securities.
We would appreciate your consideration of a year-end gift to the Fogarty Institute to help further our mission of developing the next generation of medical innovators, improving patients lives and lowering healthcare costs. For more information on year-end giving strategies and how you can make a positive impact with a special gift to the Institute, please contact Will at Will_Wyman@fogartyinstitute.org or Peter Hero at Peter_Hero@fogartyinstitute.org.