Charitable Tax Planning
appreciated assets (including securities)
can be a thoughtful tactic for people
who can't offset capital gains with capital
1: Lynn Knight invested $8,000 in
an aggressive stock fund in 2009. The
shares are now worth $20,000, thanks to
some excellent selections, but Lynn believes
it is time to take her gains. Selling
the shares would generate a $12,000 long-term
capital gain, costing Lynn thousands of
dollars in tax.
In our scenario, Lynn has no old or new
capital losses she can use to offset her
gains. She does have a commitment to donate
$10,000 each year to her alma mater, Therefore,
she donates her $20,000 of fund shares
in December 2014, notifying the school
that she is making her contributions for
2014 and 2015.
this maneuver, Lynn receives a $20,000
charitable tax deduction for 2014 while
avoiding tax on the disposition of the
appreciated shares. Meanwhile, the $20,000
she would have sent to the college is
still in Lynn's bank account, so she can
use the money to reinvest in assets she
believes have investment appeal now.
The method described here probably -will
wink welHbr-a single $20,000 donation
of appreciated securities, as described.
All Lynn has to do is get the appropriate
account number from her alma mater and
notify the fund company to make the transfer
by year-end, for a 2014 deduction.
would be different, though, if Lynn wanted
to make a $1,000 charitable contribution
to 20 different charities. To use her
appreciated fund shares, she would have
to deal with a huge amount of paperwork,
getting the information from each charity
and forwarding it to the fund company.
such a situation, you can use a donor
advised fund (DAF) to handle multiple
transfers with ease. Many financial firms
and community foundations offer a DAF.
2: Intending to make multiple donations,
Lynn has the fund company transfer her
$20,000 worth of shares to a DAF she has
specified. If she acts by year-end, Lynn
will get the $20,000 tax deduction for
2014, she'll avoid capital gains tax and
she'll have cash in the bank to reinvest.
the transfer, the DAF can sell the shares
and put the $20,000 into Lynn's account.
Then Lynn (the donor) can advise the fund
to send $L0OO to-Charity Ar$L000 to Charity
B, and so on. Even if this process runs
into 2015 and future years, Lynn won't
lose her 2014 charitable tax deduction.
Source: November 2014 AICPA Client