Tom Herman for the Wall St Journal writes: This time of year many Americans feel generous.
As the year winds down, many write checks to their favorite charities, securing valuable income-tax deductions. (You can’t deduct charitable gifts unless you “itemize” deductions, rather than choosing the standard deduction.)
That’s often been part of my family’s year-end tax strategy. Recently, I emailed John Ellis, our investment manager at the firm of Beck, Mack & Oliver in New York and asked him to sell some stock so we could make a few charitable donations.
John suggested that I consider a different approach. Instead of selling those stocks, he said, consider donating those shares to charities. Choose shares owned for more than a year and that have appreciated since you bought them.
That’s a smart idea, tax experts agree. “It allows you to get a fair-market-value charitable-donation deduction on your return, as well as not having to pick up the capital gain on the sale of the stock,” says Brittney Saks, a partner at PricewaterhouseCoopers and head of PwC’s U.S. personal financial- services practice. “It’s a very common technique used throughout the year, especially as we approach yearend, as people look to take advantage of year-end tax planning ideas.”
Many taxpayers donate shares to “donor-advised” charitable-giving funds. That’s what I’m doing. I am donating shares that have soared in value over many years to the joint account my wife and I have at Fidelity Charitable, which describes itself as “an independent public charity with a donor-advised fund program.” That gives us a tax deduction on our federal return for this year. At a later date, we’ll ask Fidelity Charitable to make donations from our account to a few qualified organizations.
Warning: If you donate stock, don’t give shares that have declined in value since you bought them. Instead, consider selling losers, creating a capital loss, and donating the proceeds to charity. Capital losses can trim your taxes.
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