Simple Gifts
Today is Giving Tuesday, a wonderful reminder to share our good fortune with others. Created in 2012 as a reaction to the consumer-focused nature of Black Friday, Giving Tuesday helps us find a deeper meaning for our money. It helps hone our focus on those things that matter most, and ultimately find some broader perspective in the middle of a busy (and expensive) holiday season.
Today, as you consider donating to your favorite charity, it may benefit you to pause and think about the different ways to give. Of course, considering the greatest impact of your gift to the donee should be a main priority. However, you should also consider your specific situation and the type of donation that suits you best.
While there are many ways to make a charitable contribution (or create a charitable legacy), sometimes the simpler the better. Two of the most common (and simple) types of charitable gifts are cash and appreciated stock. Their benefits include:
Benefits of Donating Cash to Charities:
Immediate Impact: Cash donations provide immediate funds that charities can use to support their programs and services right away.
Tax Deductions: Donors can claim a tax deduction for the full amount of their cash donation, which can reduce their taxable income. (see below)
Simplicity: Donating cash is straightforward and doesn't require any special handling or paperwork.
Flexibility: Charities can use cash donations for a wide range of needs, from operational costs to specific projects.
Mental Wellness: Research shows that donating money can improve mental wellness by making people happier than spending it on themselves. (1)
Benefits of Donating Appreciated Stock to Charities:
Avoid Capital Gains Tax: When you donate appreciated stock directly to a charity, you avoid paying capital gains tax on the increase in value of the stock.
Tax Deduction: You can claim a tax deduction for the full fair market value of the stock at the time of the donation, which can be more beneficial than donating cash.
Larger Donations: By donating stock, you can potentially give more to the charity than if you sold the stock and donated the cash proceeds, as you avoid the capital gains tax.
Portfolio Rebalancing: Donating appreciated stock can help you rebalance your investment portfolio without incurring capital gains taxes.
Personal Reward: Donors often feel satisfied by making a big contribution to a cause they care about.
When weighing the benefits of donating cash or stock, it's also important to consider the tax limitations of each type. For taxpayers in low AGI years, the tax benefit may be limited, or at least deferred. Here are a few details to consider:
Tax deductions for Cash Donations:
1. Generally, you can deduct up to 60% of your adjusted gross income (AGI) for cash donations to qualifying organizations.
2. If your contributions exceed this limit, you can carry over the excess amount up to five years.
Tax Deductions for Stock Donations:
1. When donating appreciated stock, you can deduct up to 30% of your AGI.
2. Like cash donations, if your contributions exceed this limit, you can carry over the excess for up to five years.
No matter how you choose to give, make sure to enjoy the good fortune you are sharing. After all, pursuing prosperity means much more than making greater amounts of money and finding better ways to spend it on ourselves. Sharing our treasures with others is one of the easiest shortcuts on the path to an enriching and prosperous life.
(1) Charity Navigator. "Why You Should Donate." Charity Navigator, https://www.charitynavigator.org/donor-basics/giving-101/why-donate/. Accessed 3 Dec. 2024
