Charitable Giving | Financial Planning Chapel Hill l Old Peak Financial Advisors

Charitable Giving

November 29, 2017


Charitable Giving

November 29, 2017

There may be more efficient ways to give to charity.

Americans give hundreds of billions of dollars to charity each year. If you are someone who gives regularly, you should keep track of your giving. Include it as an expense to determine your spending/saving budget. Additionally, charitable giving can influence your tax deductions. Here's what you should know.

How does it affect my taxes?

Giving to charities, more specifically a qualified organization as defined by the IRS, can reduce your tax bill.

Your qualified charitable contributions for the year must be included in your itemized tax deductions on Schedule A. If your standard deduction is larger than your total itemized deductions, there is generally no tax benefit from your charitable donation; which, of course, is likely not the driver of your giving anyway.

The contribution deduction allowable on Schedule A is limited and depends on the type of donation you make and the organization you give it to. Of note, cash donations to qualified charities are subject to the most generous tax deductions.

In response to the economic hardships associated with the global pandemic, the CARES Act (2020) provided a temporary provision to incent greater cash contributions to qualified public charities by raising the deduction limit, if elected, to 100% of your adjusted gross income (AGI). This is up from the previous limit of 60% of AGI. If the cash donation is to a private foundation, the deduction limit is 30% of your AGI


Cash Donation to Qualified Public Charities Limited to 100% of AB (2021)



Cash Donations to Private Foundations Limited to 30% AGI

If you are not making a gift of cash to an IRS qualified charity, your deduction will be limited to 50%, 30%, or 20% of your AGI. Itemized deduction limits are summarized below as a percentage of AGI.

charitable giving contribution types

When giving property, there is a 50% limitation for combined contributions. Here is a chart for examples of charitable organizations. Exempt organization checker.

Not to worry if you aren’t able to deduct all your charitable donations in a given year. You can carry forward any amount you weren’t able to deduct due to AGI limitations up to 5 years until it is all used.

Finally, for the 2021 tax year, an extension of the CARES Act also allows for a charitable donation deduction of $300 for single filers and $600 for joint filers. So even if you don’t itemize you could give and receive a modest deduction. 

Appreciated Securities

Security equals anything you can own in a brokerage account, like a stock, bond, or a mutual fund.

Appreciated securities should be used first when you give to charity. Securities are considered capital gain property.

When you sell a security, capital gains tax is due on the difference between your purchase price and the price you sell it (fair market value). Not so when you instead give those shares to a qualified charity. Let’s say your aunt gave you 10 shares of a stock ABC on your 10th birthday. They were worth $10/share for a total of $100. Now, you are 40 years old and you still own those 100 shares but now ABC is trading at $100/share. You decide you want to make a gift this year to a meaningful charity.

You could use one of these approaches and have a $1,000 charitable donation in either case. 

A. Sell the 100 shares of ABC and write a check to the charity

    • You would also pay capital gains tax on the $900 gain.

B. Gift the 100 shares of ABC directly to the charity.

    • No capital gains tax due.

Capital gains are divided between long term (owned more than 1 year) and short term (owned for 1 year or less). The above example relates to long-term capital gain property. If you are donating a security to charity with a short-term capital gain, only your cost basis (purchase price) can be included as your charitable donation. Compared to long-term appreciated securities, the fair market value is included as your charitable deduction.

Donor Advised Funds

A donor-advised fund (DAF) is operated by a public charity. When you make an irrevocable contribution to a DAF, you can include that amount in your tax-deductible charitable contributions for the year. Your contribution can be in the form of cash or securities (stock/bond/mutual fund).

From the DAF, you can then invest it and give it to any public charity at any time in any year. It separates the desire to give to charity at your discretion and the most tax-efficient year to do it. For example, if you give regularly to charity and this year is one of your highest income years, you could front-load your contributions this year and then give to charity over many years. This works especially well for folks with variable income or in a year that you sell a business, for example.

Many people have found other benefits to using DAFs including centralized record keeping, supporting records of security donations that may be required when you file your taxes, the ability to give anonymously, and a more accessible alternative to a family foundation/endowment.

The biggest DAFs are at Schwab, Fidelity, Vanguard, and National Philanthropic trusts. They each have minimums (as low as $5,000 at Fidelity and Schwab) to start the fund and an annual operating fee (beginning at 0.60% to as low as 0.10% depending on the balance).

Stay in touch with both your financial planner and your tax advisor for your specific situation.

This article is not intended to provide tax, legal, accounting, financial, or professional advice. Readers should seek advice from qualified professionals who can review their specific circumstances. Old Peak Finance endeavors to provide information that is accurate and current. However, we cannot guarantee that this information has not been outdated or otherwise rendered incorrect by new research, legislation, or other changes. Old Peak Finance has no liability or responsibility to any individual or entity with respect to losses or damages caused or alleged to be caused, directly or indirectly, by the information contained on this website.

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