Robert McRae, AAMS®
Edward Jones Financial Advisor
The holiday season is here, which means gift-giving is probably on your mind. In addition to making gifts to your family and friends, you also may be interested in contributing to charitable organizations. But before you donate financial assets, such as stocks, you will need to consider several factors, including taxes, your portfolio balance and the reputation of the charity. Let’s look at these areas:
Taxes – Your donations to qualified charities (those that are considered 501(c) (3) organizations by the Internal Revenue Service) can give you tax deductions – if you itemize deductions on your tax return. However, due to recent tax law changes, the standard deduction for 2018 has almost doubled, to $24,000 for married couples, and to $12,000 for single filers. As a result, you may be less likely to itemize deductions, so you could have less incentive, at least for tax reasons, to make charitable gifts. However, if you give appreciated stocks, you may be allowed a charitable deduction for the full fair market value of the gift on the date of the transfer, even if your original cost was only a fraction of today’s value. Plus, you may not be subject to the capital gains tax you might have to pay if you eventually sold the stocks.
Also, depending on your age, you might be able to use your traditional IRA as a charitable-funding vehicle. Once you turn 70½, you generally must begin taking withdrawals – called required minimum distributions or RMDs – from your traditional IRA. (Roth IRAs are not subject to RMDs during your lifetime.) These RMDs from your traditional IRA are taxable, but you may be able to exclude up to $100,000 of RMDs per year from your taxable income if you transfer the funds directly to qualified charitable organizations. In any case, consult with your tax advisor before donating appreciated assets to a charity.
Portfolio balance – When you donate financial assets to a charity, you are also taking them away from your portfolio. This could be an issue, especially if you repeatedly donate the same types of assets. For example, if you’re donating some growth-oriented stocks, will you lower the overall growth potential of your portfolio? You may want to consult with a financial professional to ensure your charitable gifts will still allow you to maintain a portfolio balance appropriate for your goals and risk tolerance.
Reputation of the charity – You may want to do some homework to make sure you are giving to a reputable charity. Many experts on charitable giving say that a worthwhile charity should spend at least 75 percent of its income on programs, rather than administrative costs. You may be able to find this type of information on a charitable group’s annual report and its website. You can also browse the web for the names of agencies that evaluate charitable groups.
By considering the aspects of charitable giving described above, you can get more satisfaction from your generosity – because you’ll know that your gift not only supports a good cause, but also fits well into your overall financial picture.
Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.