Supersize the Tax Benefits of Your Donations
It is commonly known that donating to a charity generates a tax credit on your personal tax return, but you may be able to get an even bigger tax savings…
When you donate, the donation tax credit generally saves you tax at roughly the lowest tax bracket for the first $200 and then at the higher tax bracket for the amounts over $200. That may be the case even if you aren’t in the higher tax brackets.
That’s a pretty good tax savings. But you can do even better with this planning tip!
If you donate certain types of capital property, you may not have to pay tax on the capital gains realized on those gifts. This includes mutual funds, investments on a designated stock exchange, and a few others.
If you are planning to donate and you own investments that have large capital gains, there is potentially a very significant tax planning advantage. Normally if you sell the shares and gift the cash to the charity, you will pay tax on any capital gains accrued in those investments and then get the donation tax credit.
However, if you donate the investments directly (in-kind*) then you may not have to pay any tax on those capital gains AND you still get the full donation tax credit. Now that’s a good deal!
Therefore, when you are ready to make a donation, look over your holdings and donate the ones with the largest accrued capital gains (in-kind) instead of cash.
Bonus Tips:
- But what if you want to continue to hold that investment? Just donate the shares in-kind and then take the other cash that you were going to donate and buy back the same investments after you have donated the original ones. In a practical sense this may let you “lock in” the tax-free capital gain part, by increasing the Adjusted Cost Base of the shares.
- You can group all of your family donations and put them all on one person’s tax return.
- Make your donations before December 31st to use them this year.
- You can use donations in the year they are made, or carry them forward and use them up to five years in the future.
- You can make donations through your Will, and your estate will still benefit from the tax savings.
As with all planning opportunities, please make sure you speak with your financial advisors/tax preparers well in advance to make sure you maximize the value of these tips for your personal situation.
The benefits of donating to charity are very significant… think of all the good you are able to accomplish. At the same time, why not arrange things to maximize the benefit to yourself as well. Now that’s a nice win/win!
A gift of securities is an easy and tax effective way to give. Securities can include stocks, shares, bonds, and mutual funds. You will need to instruct your broker to transfer the securities to RUH Foundation’s brokerage account and inform us by completing the Securities Transfer Form.
For more information on making a gift of shares and other securities, please contact Candace Boersma, Legacy Giving and Donor Relations Officer, at 306.655.1984 or at info@ruhf.org.
*Donating in-kind is usually quite easy, just talk to your financial planner and charity.
