Cash or Stock? A Strategic Guide to Charitable Giving
As we navigate the unpredictable economic landscape, many philanthropic clients face a daunting dilemma: should they prioritize preserving cash or leveraging their appreciated, publicly-traded stock or privately held stock to support their favorite charities? The answer lies in a nuanced understanding of the tax implications and strategic benefits of each approach.
In recent years, the nonprofit sector has faced significant challenges, including turbulent economic conditions, inflation concerns, and potential tax changes. As a result, many donors are reevaluating their charitable giving habits, opting for more conservative financial decisions.
Against this backdrop, it’s essential to engage with your clients about their charitable giving budgets for 2024 and beyond to explore the most effective ways to utilize their assets. This includes evaluating the types of assets that are best suited to give to charity, considering the current market conditions and tax implications.
The Case for Cash
In an uncertain economic climate, preserving cash may be a prudent decision for many clients. With interest rates and inflation on the rise, household finances may be more precarious than ever. In this scenario, donating cash to a charity or donor advised fund can be a more attractive option for clients who typically give regularly give cash to their favorite charities or their donor advised funds at Greater Houston Community Foundation (Foundation). Some donors can benefit from “bunching” gifts in one tax year to offset income and maximize deductions.
The Benefits of Stock
However, donating appreciated, stock can be a highly effective tax strategy in any economy. By transferring long-term, marketable securities to a public charity or donor advised fund, clients may avoid capital gains tax and potentially enjoy an income tax deduction at the fair market value of the securities. This is a win-win for both the client and the charity.
Furthermore, many clients may be holding long-term stock positions that have appreciated significantly since they purchased them. Even in a rocky stock market, not all stocks are down. By contributing these appreciated securities to a donor advised fund, clients can:
- Potentially avoid capital gains tax on the sale of the securities.
- May be eligible to enjoy an income tax deduction for the fair market value of the securities.
- Removing the value of the stock from their estate
- Support their favorite charities without reducing their cash reserves.
A Strategic Approach
For clients whose portfolios are down significantly, contributing cash to a donor advised fund might be a more prudent approach than donating stock. Gifts of cash can:
- Continue supporting their favorite charities even if a client’s personal stock may have dramatically fallen in value.
- Give these positions more time to recover value and potentially contribute to a donor advised fund at a higher value in the future.
- Result in a higher tax deduction for the client when they contribute these recovered stocks.
Empowering Philanthropic Giving
Navigating the complexities of charitable giving requires a thoughtful consideration of both options that giving cash or stock can provide. By understanding the tax implications and strategic benefits of each approach, you can empower your clients to make informed decisions that align with their philanthropic goals and financial priorities.
The Foundation offers a range of giving options that will enable your clients to support the causes and organizations that matter most to them. Whether they are looking to support a specific cause or organization, leave a legacy for future generations, or find a way to give back in a way that makes sense for their unique situation, we’re here as your philanthropic partner. By choosing Greater Houston Community Foundation, your clients can trust that their philanthropic efforts will be supported by a dedicated team of experts who share their passion for making a positive impact in our community.
Contact Kevin Pickett to learn more about how your client can make a lasting impact in the community by gifting cash or donating stock.
More Helpful Articles by Greater Houston Community Foundation:
- What is a Donor Advised Fund? The Complete Guide
- The Importance of Charitable Giving in Financial and Estate Planning
- How to Start a Scholarship Fund
- Advancing Impact Donor Breakfast: Cradle-to-Career Systems
- How to Give Back to Your Community
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