Part I: Strategic Year-End Donating

Thursday, December 6th, 2018

Good Morning Relaxing Retirement Member,

As the deadline of another year-end approaches, and the requests for donations come in the mail, many of us feverishly write out checks to our charities and non-profit organizations of choice, and of course, our alma mater.

Before you write out that first check, take a moment to strategically think about “how” you are going to donate.  This is especially important with the new tax law that took effect in January, 2018 as you will see in a moment.

There are two important strategies to consider.  The first is available to anyone who has appreciated investments held outside of IRAs.

The second is only available once you have reached age 70 ½ and are required to withdraw funds annually from your IRA.

Let’s begin today with the first strategy which is available to anyone regardless of age.

Strategy #1: Donating Shares vs. Cash

As we have discussed on many occasions, any gain realized when selling shares of an investment held outside of IRAs is subject to capital gains taxes.

However, when you donate shares of these appreciated investments, as opposed to donating cash, you can avoid these capital gains and potentially make a bigger charitable donation.

Essentially, you can sell shares of an appreciated investment, pay the capital gains tax, and then donate the proceeds to charity.

Or, you can donate the shares directly to the charity prior to selling them.

Let’s walk through a quick example of someone in the new 32% tax bracket making a $10,000 donation.

Sell Your Shares and Donate the Proceeds

Let’s assume the investment you purchased years ago for $4,000 is now worth $10,000.  If you sold it, $6,000 would be subject to capital gains tax.

At a combined federal and state capital gains tax rate of 25%, you would owe $1,500 in taxes, thus netting you out at $8,500 after taxes.

Assuming you then donated the $8,500 proceeds to charity, your federal income tax savings on your donation would be $2,720 (32% bracket).

Donate Your Shares

As an alternative, if you donated the full market value of your shares to charity, $10,000, your tax savings on your donation would be $3,200 (32% tax bracket).

And, your charity would receive $10,000 instead of $8,500.

The key component of this is your charity of choice does not pay capital gains tax when they sell your shares because charities don’t pay taxes.


The mechanics of this are actually quite simple.  You have two options:

  1. Ask your charity of choice for their gifting instructions for donating securities (Account custodian, Account number, DTC number, etc.). All sizable charitable organizations have brokerage accounts which receive charitable donations of shares.

    Provide these written instructions to your account custodian, i.e. Charles Schwab, and designate the holding you wish to donate and the number of shares.

    You would then receive a receipt indicating the fair market value of the donated shares to use for income tax return preparation.

  1. The second option is to donate these appreciated shares to a charitable fund. Once you donate your appreciated shares to this separately designated fund, you qualify for the charitable deduction.

    From there, the charitable fund sells your appreciated holdings and you instruct the charitable fund custodian to make your desired donations.  The account custodian sends a check to your charity(s) of choice

    The importance of this method is two-fold:

    • First, it simplifies the process because you only have to donate shares to one fund instead of multiple charities.
    • The second key component is it allows you to donate amounts larger than you are planning to donate in a given year, qualify for the larger itemized deduction, and then make donations on your timetable. This is very important with the new tax law because of the larger $24,000 standard deduction most Americans filing jointly now qualify for, thus potentially eliminating the added tax benefits of making charitable donations because you already qualify for the higher deduction without the charitable donation.

I began donating shares instead of cash a few years back and it has worked out great.  I have now taken the next step this year to take advantage of the charitable fund strategy.

If you would like to explore this in greater detail in your own unique situation, simply let us know.

Stay tuned to for next edition where I discuss a second strategy which is especially important in light of the new tax legislation this year.

Committed To Your Relaxing Retirement,

Jack Phelps
The Retirement Coach

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(The content of this letter does not constitute a tax opinion. Always consult with a competent tax professional service provider for advice on tax matters specific to your situation.)