"Unlocking Impact: How Donating Securities Transforms Charitable Giving"

Financial Insights Newsletter: June 2024

Transforming Charitable Giving: Leveraging Securities Instead of Cash

Dear Readers,

In the ever-evolving landscape of charitable giving, professionals are discovering innovative ways to maximize the impact of their contributions. One such method gaining traction is the donation of securities instead of cash. This approach not only benefits the recipient organizations but also offers substantial advantages to donors. Let’s explore how this works and why it might be a smart move for your philanthropic endeavors.

Why Donate Securities?

1. Tax Efficiency

When you donate appreciated securities (stocks, bonds, or mutual funds) directly to a charity, you can avoid paying capital gains tax on the appreciation. This means that the full value of the asset goes to the charity, and you receive a charitable deduction for the fair market value of the securities.

For example, if you purchased stock for $1,000 that is now worth $10,000, donating the stock directly to a charity allows you to avoid capital gains tax on the $9,000 appreciation and claim a $10,000 charitable deduction.

2. Enhanced Giving Capacity

By donating appreciated securities, you may be able to give more than if you were to sell the securities and donate the after-tax proceeds. The charity receives the full market value of the securities, potentially increasing your contribution's impact.

3. Simplified Record-Keeping

When donating securities, especially if they are held in a brokerage account, the transfer process is straightforward, and documentation is typically easier to manage than multiple cash donations.

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Steps to Donate Securities

1. Choose the right securities: Select securities that have appreciated in value and that you've held for more than a year to maximize the tax benefits.

2. Contact the charity: Ensure the charity can accept donations of securities and obtain their brokerage account information.

3. Instruct your broker: Provide your broker with the necessary details to transfer the securities to the charity's account.

4. Document the donation: Obtain a receipt from the charity confirming the donation, including the date and the fair market value of the securities.

Potential Pitfalls to Avoid

• Short-Term Holdings: Donating securities held for less than a year may not provide the same tax benefits.
• Donation Limits: Be aware of CRA limits; the deduction for donating appreciated securities is generally capped at 30% of your adjusted gross income (AGI), with excess contributions carried forward.
• Valuation Challenges: Ensure accurate valuation at the time of donation to avoid discrepancies.

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Real-World Examples

Case Study 1: Tech Professional

Jane, a software engineer, has seen her company stock soar over the past five years. Instead of donating $5,000 in cash, she donates $5,000 worth of stock that she originally purchased for $1,000. Jane avoids paying capital gains tax on the $4,000 appreciation and receives a $5,000 charitable deduction.

Case Study 2: Financial Advisor

Mark, a financial advisor, encourages his clients to donate appreciated securities to their preferred charities. He explains the tax benefits and assists in selecting the most suitable securities for donation, ensuring his clients maximize their philanthropic impact while optimizing their tax situations.

Conclusion

As professionals committed to making a difference, exploring the option of donating securities can amplify the impact of your charitable contributions. This strategy not only benefits the causes you care about but also offers significant financial advantages. Consult with your financial advisor to understand how this approach can fit into your overall financial and philanthropic strategy.

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Stay informed and financially savvy!

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Sincerely,

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Albert Mason

Peak Summit Wealth

Raymond James Ltd.

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*Information in this article is from sources believed to be reliable; however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. [If there is tax info, include: Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters.] The views are those of the author, Albert Mason, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision.

Raymond James Ltd. is a Member Canadian Investor Protection Fund.