Everyone knows that charitable contributions are subject to special tax exemptions and regulations. Finding the best way to invest in a charitable contribution, however, will allow you to get the most from your investment and the most favorable taxation available. Writing a check seems like the obvious answer to so many people, but there are actually better ways to give to charity and reap the tax rewards if you know what you are doing. Using your investments as donations can save you a lot of money in taxes as opposed to cashing them out and writing a check.
When you use stocks, bonds, and other investments to invest in charitable contributions, you will see a much larger benefit in terms of taxes. This is because you are most likely going to avoid paying capital gains taxes, which means that you can give more and lose less to Uncle Sam. People who have larger investments or who make significant amounts of money are much better off to invest in charities this way because the difference is much greater. The types of investments that you can donate vary, but include any security that has a “long-term unrealized gain”.
That basically means if you bought a stock more than a year ago and its value is currently greater than what you paid for it, it can be donated to charity. Once donated, you can take a tax deduction for the entire market value of the security, as long as it is no more than 30% of your adjusted gross income. If you have a stock that has a market value of $35,000, for example, and your income is $125,000, you can take a deduction for the entire stock. If you have that same stock and you make only $75,000, however, you will be able to take a tax deduction for up to $22,500 of that stock.
When you want to support a charity, the tax deductions that you can expect are always going to be significant. However, if you have a lot of money invested in securities, you might find it more advantageous to donate those, instead. Favorable taxation allows you to get more for securities donations than cash so that you can make the most from your investments while giving back to your community or charities that matter to you. Before you invest in charitable contributions, consider asking your chosen charity whether they accept securities as a donation.