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It happens every year, doesn’t it? Summer comes to a close, we watch a few football games and then – before we know it – we find ourselves knee-deep in wrapping paper and know the holiday season is officially upon us. It’s a time for family and food, and for many of us, a time to extend our generosity by giving back to the charities that mean the most to us.

As we approach the end of the year, you may also want to get your portfolio in shape and diversify where necessary. But consider this, donating long-term appreciated securities has the potential to help you realign your portfolio, and give back tax-efficiently. And, if done right, your donation may have an even greater impact for the lucky recipient.

A gift for them, a (tax) break for you

Donating appreciated stock offers several benefits – chief among them, the ability to make a larger value donation than giving cash after liquidating. You can avoid capital gains tax on the appreciated amount that you would have incurred had you sold the stock, and you get a tax deduction for the full fair market value of your long-term capital gain asset – up to 30% of the your adjusted gross income. Plus, as mentioned earlier, it’s a way to reduce a concentrated equity position and help bring your portfolio back in line with your goals.

Here are four benefits of donating appreciated stock:

  1. The tax deduction for the market value of the donation
  2. Federal capital gains taxes savings in the amount you otherwise would have incurred from selling the stock outright
  3. An opportunity to rebalance your portfolio in line with your financial plan
  4. Plus, the ability to benefit your charity by the full appreciated amount of the stock

Gifting stock to a donor advised fund (DAF)

Donating to a charitable DAF tacks on another great benefit: The potential to grow your donation, tax-free. Donors use the fund as a financial planning tool to enhance their charitable giving. According to your recommendations, the fund – a charity in and of itself – then distributes the contributions to approved 501(c)(3) organizations over time. Additional benefits of DAFs include the ability to make contributions whenever you please and claim the tax deduction when it works best for you and your financial plan; as well as an easy and cost-efficient way to get multiple generations involved in your family’s philanthropic endeavors.

A bunching strategy can work particularly well with DAFs, as well. If you’re charitably inclined but won’t have sufficient itemized deductions to exceed the increased standard deduction, you may wish to bunch deductions by making a large charitable gift during a single year, equal to the total donations you would have made over several years. This can help you take advantage of itemizing in the year of your large donation, while taking the standard deduction in future years.

There are several factors to take into account when deciding how best to share your wealth. Your financial advisor can walk through the many options with you to find the best path for you, your family and your financial plan.

Sources: forbes.com, wsj.com, jasandiego.org, investopedia.com

Diversification does not guarantee a profit nor protect against loss. The process of rebalancing may result in tax consequences. This material is not intended as tax advice. Please consult your tax advisor for further information. There is no assurance that any investment strategy will be successful. Investing involves risk and investors may incur a profit or a loss. Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a donor advised fund for federal and state tax purposes. To learn more about the potential risks and benefits of donor advised funds, please contact Raymond James.

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