Giving in a Down Market Can Provide Tax Savings
(Excerpt from a Vanguard article)
When
the market's performing poorly, less money may be given away to charity. Yet
that's the time when society may need it most—when more people are dealing with
inflation, unemployment, and homelessness. That's why, despite market
conditions, it's important to keep giving. If money is tight, think about ways
to give that don't require monetary contributions or that could offset gains in
your portfolio:
- Sell depreciated securities and
donate the proceeds. If you have assets that have gone
down in value, sell those and gift the proceeds to a public charity. There are
three ways to take advantage of the corresponding tax break:
- Reduce your capital gains tax
liability by using the capital loss from the sale to offset capital gains from
your other investments.
- Reduce your ordinary taxable income
by up to $3,000 if filing jointly (up to $1,500 if filing separately). If your
net loss is greater than $3,000, you can carry over the unused part and apply
it to the next year's taxable income until the loss is completely used up.
- Gain a deduction for the value of the
contributions, subject to the usual limitations (up to 50% of adjusted gross
income [AGI] for all charitable gifts, with an additional limitation of up to
30% of AGI for donations of securities held over one year).
- Donate better-performing assets. You
can generally take a tax deduction for the full market value of the securities
you donate. You can also avoid paying capital gains tax on the amount the
securities have appreciated since you acquired them--a tax you'd owe if you
sold the securities first and then donated the cash proceeds.
-
Give your time and talent. You can always donate your time and volunteer at your charity of choice. You may
even find yourself becoming more connected to that cause.