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5 Questions you should ask your CPA or financial advisor before making a charitable gift

June 04, 2014 | by Phillip Buchanan

5 Questions you should ask your CPA or financial advisor before making a charitable gift

There are numerous ways to make charitable gifts and fulfill your personal and philanthropic goals.  While we all tend to make smaller charitable gifts by check or credit card, it is wise to understand your choices (and related benefits) when considering a larger gift.

Here are five simple questions you may want to ask your CPA or financial advisor as you consider your charitable giving this year:

1.  Which assets should I use to make a charitable gift – cash or appreciated securities (stocks, bonds or mutual funds)? 

Why you should ask: Charities are glad to receive cash, but if you own appreciated securities and want to make an outright gift to a charity, you can avoid two levels of taxation.

  • First, you completely avoid the capital gain taxes you would incur if you personally sold the asset. 
  • Second, you also receive an income tax deduction for the full “fair market value” of the securities and can use this to offset applicable federal, state,  and local income taxes (just like a cash gift). 

If you are “in love” with a particular stock or other security (meaning you think it will continue to appreciate in value or cannot bear to let it go for personal reasons), you can donate the stock and use the cash you would have otherwise donated to the charity to purchase the same stock.  You will then own the same security but with a higher cost basis (meaning less taxable gain if you sell that security in the future).  Pretty smart, eh?

2.  How much charitable deduction can I use this year?

Why you should ask: If you make a large gift and have excess charitable deduction… it’s okay!  Many donors think they have to “use or lose” all of a charitable deduction in a single year.  You actually have up to six years to use up your charitable deduction.

3.  Should I “stack” several years of charitable gift payments into one year? 

Why you should ask: Some donors receive greater tax savings by “stacking” charitable gifts (which means paying several years of gifts in a single year).  You can do so in several ways, such as making a single, large gift to a charity (e.g. pre-pay a 5-year Reunion Class pledge to Duke University) or making a donation to a donor advised fund and recommending distributions from it to your favorite charities for several years to come. 

Sometimes a donor feels that a stock has hit its high value, and he or she wants to cash out. This can be a great time to consider a current gift or a life income gift to reduce taxes and generate a substantial charitable deduction.

4.  Are there ways for me to combine my long-term charitable goals with my personal financial security? 

Why you should ask: There are many charitable gifts that combine a donor’s personal and philanthropic goals.  These include “life income gifts” such as charitable remainder trusts and charitable gift annuities that can allow a donor to diversify a large investment in one asset (stock in a single company, debt-free real estate, a family business, etc.), reduce or avoid taxes, and continue to receive income based on the full value of the donated asset (rather than the “after tax” net proceeds the donor would have otherwise received after selling the asset).

Life income gifts are sometimes used for supplemental retirement income planning and may be especially attractive if a donor wants to leave an estate gift to the charity.

Donors who (a) will be subject to estate taxes and (b) want to make a family wealth transfer at a lower tax cost may want to consider a charitable lead trust. A “CLT” will make payments to a charity for a number of years, after which the assets will pass to the donor’s designated beneficiaries with reduced or no gift or estate tax.

5.  Which of my assets are best to leave a legacy gift to charity?                                       

Why you should ask: In decades past, the highest value asset owned by the average American was his or her home (and a company pension provided retirement income). Today, the highest value asset owned by the average American is their IRA, 401(k), ESOP, or other qualified retirement account.

You can name a charity as a primary or contingent beneficiary on the “beneficiary designation form” which is available from the “plan administrator” (the bank or company that administers the account).  You can name a charity as a beneficiary of all or part of the account and 100% of the gift can bypass probate costs, estate taxes, and income taxes that would otherwise apply to the IRA or retirement plan. 

About the author


Phillip Buchanan Senior Philanthropic Counsel for Duke University

Phil is a veteran of development and gift planning who considers it a privilege to help good people celebrate the joy of giving. He serves as Duke’s senior philanthropic counsel and helps donors, professional advisors and Duke Development officers evaluate the best options for making a charitable gift to Duke. He has been featured in publications such as BusinessWeek and Kiplinger’s. When he’s not at work, Phil attempts to solve the mysteries of the universe for his three inquisitive young sons.

Phillip Buchanan can be contacted via email or by phone at (919) 681-0467.

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