“…family giving offers an opportunity to exercise human excellence.” –
From The Cycle of the Gift, by Hughes, Massenzio, and Whitaker, 2013
by Kevin Margolis | Contributor
The Rewards of Charitable Giving
Charitable contributions can provide significant personal satisfaction; many individuals have causes they are passionate about. In 2014, American donations to charity totaled $358.8 billion. In addition to personal fulfillment, charitable giving can yield advantageous tax benefits, but it’s essential to approach it wisely.
Best Practices for Making Donations
Often, a straightforward cash donation might not be the most advantageous option. As families consider year-end contributions, they may have specific cash amounts in mind for charities. While cash donations offer tax benefits, there are alternative methods to evaluate before deciding.
For instance, donating appreciated assets like stocks could be a more beneficial choice for both the charity and the donor. Imagine you bought stock worth $5,000 (ensuring that it has been held for over a year) that has now risen to $10,000. You could donate the stock valued at $10,000 for tax purposes and reinvest the cash initially designated for the charity into the same investment to secure a higher cost basis. This way, you claim a $10,000 charitable deduction, avoid recognizing capital gains on the investment, and the charity receives a significant contribution.
Considering Donor-Advised Funds
Another option for charitable giving is a donor-advised fund (DAF). These funds are managed by public charities that handle donations on behalf of contributors and grant funds to nonprofit organizations. A contribution to a DAF allows for both cash and non-cash donations. In the Dallas area, respected DAFs include the Communities Foundation, the Dallas Foundation, and the Dallas Jewish Community Foundation. These foundations administer the donations, enabling donors to direct their funds to selected charities over time, while the tax deduction for the donation is immediate.
If donations are made using appreciated securities, capital gains tax can be avoided. However, if cash is donated, the contribution remains eligible as a charitable deduction on your tax return. Keep in mind that donations to donor-advised funds might incur administrative and investment fees, so it’s advisable to consult your financial advisor to ascertain if a DAF aligns with your interests.
Fostering a Culture of Legacy Giving
Investing in a DAF can cultivate a culture of “legacy giving” within a family. Engage in discussions about philanthropy with your children and grandchildren, sharing why specific causes matter to you. These conversations impart invaluable life lessons.
Kevin W. Margolis CPA/PFS is a wealth manager and Managing Director at SFMG Wealth Advisors. With over 25 years of experience in financial, tax, and business consulting, he is affiliated with the AICPA, Dallas Estate Planning Council, the Financial Planning Association (FPA), and The National Association of Personal Financial Advisors (NAPFA). Contact Kevin at Kevin@SFMG.com or 972.960.6460.
NOTE: Please consult your tax and/or financial advisor before implementing these recommendations. SFMG is not a CPA firm.
