A Unique Year-End Tax Strategy for Charitable Giving

As we approach the end of the calendar year, it’s the perfect time to review opportunities for maximizing the impact of charitable contributions—both for the organizations you support and for your own financial wellbeing. One particularly effective yet often overlooked strategy involves leveraging highly appreciated stock within your portfolio to fulfill charitable pledges. This approach not only amplifies the value of your donation but also provides significant tax advantages.

At Schechter, we’re passionate about sharing creative and uncommon financial strategies that help improve our clients’ overall portfolio returns. Let’s take a closer look at how this works and why it’s such a powerful tool for those making substantial charitable contributions.

The Opportunity: Donating Appreciated Stock Instead of Cash
For clients who donate $25,000 or more annually, we recommend evaluating their portfolios to identify highly appreciated stock that can be transferred directly to their charity of choice instead of making cash donations. This approach provides two primary benefits:
1.    Avoiding Capital Gains Tax: By donating stock that has significantly appreciated in value, you bypass the capital gains tax you would incur if you sold the stock outright.
2.    Maximizing Tax Deductions: The full fair market value of the stock at the time of the donation can be deducted on your tax return, subject to IRS limits.

How it Works: A Simple Example
Imagine you purchased $50,000 of Apple stock a few years ago, and today it’s worth $100,000. If you’ve made a $100,000 charitable pledge, here’s how the strategy could unfold:
1.    Stock Transfer: We arrange for the transfer of the $100,000 of Apple stock directly to your charity of choice. As a qualified 501(c)(3) organization, the charity can sell the stock tax-free to fulfill your pledge.
2.    Tax Deduction: You can take a charitable deduction of $100,000 on your tax return for the year of the donation.
3.    Reinvestment: On the same day, we can help you repurchase $100,000 worth of Apple stock using cash reserves. This resets the cost basis of the stock to its current market value, potentially reducing future capital gains tax liability.

The Tax Savings: A Closer Look
If the Apple stock in this example had been held for more than one year, the capital gains tax saved could be significant. Let’s break it down:

• Original Investment: $50,000
• Appreciated Value: $100,000
• Capital Gain: $50,000
• Capital Gains Tax (at 25%): $12,500

By donating the stock directly, you avoid paying the $12,500 in capital gains tax, in addition to receiving the $100,000 charitable deduction. It’s a win-win for you and the charity.

Why This Matters
This strategy not only optimizes the impact of your charitable giving but also enhances your long-term financial plan. By reinvesting at a higher cost basis, you’re effectively reducing your potential tax liability on future stock sales while supporting causes that matter to you.

Partnering with Schechter for Creative Financial Solutions
At Schechter, we pride ourselves on delivering innovative strategies that help our clients achieve their financial goals while making a meaningful difference in their communities. Whether it’s through tax-efficient giving, advanced estate planning, or portfolio optimization, we’re here to guide you every step of the way.

If you’d like to explore how this strategy could work for you, let’s have a conversation. Together, we can craft a plan that aligns your charitable intentions with your financial objectives.

Disclosure: This article is for informational purposes only and does not constitute financial or tax advice. Please consult your tax advisor or financial professional to discuss your specific situation.