Question: What are the benefits of giving appreciated stock to a donor-advised fund if I don't plan to itemize my deductions this year?
Answer: Giving appreciated stock to a donor-advised fund -- or directly to a charity -- gives you a tax benefit even if you don't itemize. By doing so, you avoid having to pay taxes on the capital gains that have accumulated through the years. But if you sell the stock and write a check to the charity instead, you'll have to pay capital gains taxes. (If the stock has lost money, however, it's usually better to sell it first and then write a check to the fund or charity, so you can benefit from the capital loss.)
Giving appreciated securities to a donor-advised fund rather than directly to a charity will make it easier to spread your contributions to more charities over a longer time period. You can make your contribution now, then have an unlimited amount of time to decide which charities to support. You technically "recommend" that the donor-advised fund makes the grants to the charities, but grant recommendations are generally approved as long as the charity is an eligible 501c3 organization (the IRS designation for a tax-exempt charitable organization). You can usually make grants to charities that are as little as $50 or as large as your account balance.
The money remains in investing pools (there are usually several portfolios of mutual funds to choose from) until you give it to charity. Some families keep the money in the account for the long term and use the donor-advised fund to teach their children and grandchildren about charitable giving (see Smart Strategies for Giving to Charities).
Fewer people are expected to itemize since the new tax law nearly doubled the standard deduction. But a donor-advised fund can also help you make a few years' worth of contributions in a single year, so you can cross the threshold that makes filing an itemized return worthwhile. You'll be able to deduct the contribution in the year you give the stock or other money to the donor-advised fund, even if you don't grant the money to the charities for several years. The size of the deduction will be the value of the stock on the day you make the contribution, as long as you've held the stock for longer than a year.
Be aware that some small charities aren't set up to accept appreciated securities, but donor-advised funds help in that case, too. Donor-advised funds are offered by many brokerage firms and community foundations (you can find community foundations at the Community Foundation Locator). If you already have an account at the brokerage firm, it may be very easy to give stock or mutual funds. Schwab customers, for example, can go online and click a few buttons to move the money from their brokerage account to their donor-advised fund. Many donor-advised funds also accept other kinds of appreciated assets that some charities may not be set up to accept. Schwab and Fidelity, for example, accept privately held stock, real estate and other complex investments on a case-by-case basis.
Schwab and Fidelity require a minimum contribution of $5,000 to open a donor-advised fund. Vanguard requires $25,000 to get started.
As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
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