Communities Foundation of Texas (CFT) is here to help. Our team serves as a sounding board for all things charitable giving. When the topics of giving and planning arise and your clients are interested in evaluating strategies to support the causes they care about, you can loop us in to help.
One of the easiest ways to initiate a conversation about giving with your clients is to talk about the benefits of donating highly-appreciated assets, such as stocks or real estate, to a fund at CFT aligned with her passion causes. To help with that conversation, consider discussing the example of Alice, a hypothetical client, who wants to make gifts in 2025 before the tax laws change in 2026.
Alice earns more than $500,000 per year. She wants to make a $10,000 gift to one of CFT’s field of interest funds. Alice holds shares of Apple, Inc., which she purchased more than 20 years ago–and the value of the shares has increased significantly. Alice also holds plenty of cash.
Alice is debating whether to write a check to CFT for $10,000 or transferring shares of Apple stock with a total value of $10,000.
Of course, as an advisor, you know that it’s more advantageous for Alice to give the stock. However, it might help to break it down into real numbers when discussing Alice’s options:
- Alice’s annual income of more than $500,000 puts her at a Federal marginal tax rate of 37% and a Federal long-term capital gains tax rate of 23.8% (20% plus the 3.8% Net Investment Income Tax).
- Assuming that Alice itemizes her income tax deductions, and that her cost basis in the $10,000 worth of Apple shares is $2,000.
- If Alice gives cash to CFT and claims a charitable deduction of $10,000, the resulting Federal tax savings will be $3,700, bringing the net cost of the donation to $6,300.
- On the other hand, if Alice donates $10,000 of Apple stock to CFT, the tax result is more favorable because Alice will avoid an unrealized capital gain of $8,000, equating to $1,904 in capital gains tax avoided.
- The Federal income tax savings of $3,700, plus the $1,904 in capital gains tax avoided, results in a net cost to Alice of $4,396 for the $10,000 gift.
- Either way, Alice is still gifting $10,000 to charity, but giving cash “costs” Alice $6,300 while giving stock “costs” her just $4,396.
The benefits of donating highly-appreciated assets to CFT are just the beginning. Charitable giving conversations with your clients will likely lead to many productive discussions about maximizing lifetime giving, legacy planning, involving the next generation, and so much more.
Please reach out to our team anytime. We’d love to partner with you and your clients to determine the many ways they can make a difference while also keeping tax-wise strategies in mind.
