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  • Writer's picture Treavor Dodsworth CFP®, CPA, CKA®

#168 - Consider Charity Before You Sell


Give Away Business

A fairly common practice in financial planning for those that are wanting to be generous and have investments is to give long-term appreciated securities to charity prior to selling them. For example, John bought $100K of Stock A several years ago. It is now worth $200K. If John is wanting to make a charitable donation with the funds he could:

  • Option A: Sell the stock and give the proceeds to charity. In this example, the $100K gain would cause taxable income (if in an after-tax account). The tax hit could be anywhere from 0% to around 40% of the gain. Let’s assume it causes 30% tax. In this case, the individual may then only have $170K to give to charity. The charity would receive $170K and the individual would receive a $170K charitable deduction.

  • Option B: Transfer the stock directly to the charity (or a charitable fund). In this case, you can avoid the tax on the long-term capital gain. The charity receives $200K and the individual receives a $200K charitable deduction. In Option B, the charity receives more funds and the donor receives a larger tax deduction.

This is a fairly common practice and I have helped clients execute this strategy many times. What some are not aware of is that it extends beyond just long-term appreciated publicly traded stock. In fact, real estate and even businesses may be given to charity. The National Christian Foundation shares an example of the tax impact of giving a business away here. If you want to hear someone's story where they chose to give a large percentage of their business away, watch this video. Caution it very well could change your life. Much of the wealth that people have isn’t liquid. That doesn’t necessarily mean that you can’t be generous with it in a very tax-efficient manner. Especially prior to a sale, if you are wanting to be generous be sure to evaluate if the asset can be given away.

 
  • The text in this article is a little outdated but the chart is fascinating.


  • This chart shows a list of the largest one-day, one-month, and three-month losses for the S&P 500 since 1950 and then the return one year later for those that remained invested. It can be difficult to stay the course when the market has a downturn but investors are typically rewarded for staying disciplined.

 

Thank you for reading!


Images from Pexels: photographer Sora Shimazaki

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