Maximizing Tax Savings by Donating Appreciated Assets

Are you looking to reduce your tax bill while simultaneously making a significant impact to FOCUS? One strategic approach that many taxpayers overlook is the donation of appreciated assets. This savvy move not only supports the mission of FOCUS but can also provide substantial tax benefits. Here's how you can save on taxes and give back to the community at the same time.

Understanding Appreciated Assets

First, let's define appreciated assets. This term refers to assets that have increased in value over time. Common examples include stocks, bonds, real estate, or art. If you've held the asset for more than a year, then the appreciation is classified as a long-term capital gain. If you’ve held it for less than a year, then it’s a short-term capital gain.

The Benefits of Donating Appreciated Assets

Avoid Capital Gains Tax

When you sell an appreciated asset, you are typically responsible for paying taxes on the gains. However, if you donate assets with long-term capital gains to a qualified charitable organization, you can avoid this tax entirely. This means the full value of the asset goes to the charity instead of a portion being paid to the government in taxes. It’s important to emphasize that the gains must be long-term to avoid the tax bill. Additionally, this strategy only applies to assets you own outside of a tax-favored account. That’s because capital gains taxes don’t apply to assets held in IRAs,401(k)s, Roth accounts, etc.

Claim a Tax Deduction

In addition to bypassing capital gains tax, you can generally claim a charitable contribution deduction on your tax return for the fair market value of the donated property. It’s important to note that there are limits based on your adjusted gross income (AGI). For appreciated assets, you can usually deduct up to 30% of your AGI, but it's always best to consult with a tax professional to understand the specific limits applicable to your situation.

Reduce Estate Taxes

Donating appreciated property can also reduce the size of your estate. This is particularly beneficial for those who might be subject to estate taxes upon their passing. By donating during your lifetime, you reduce your taxable estate, which could result in further tax savings for your heirs.

How to Donate Appreciated Assets

Determine the Fair Market Value

For the donation to be tax-deductible, you must establish the property's fair market value. For stocks and bonds, this is relatively straightforward and based on the market price. For other assets like real estate or art, you may need a professional appraisal.

Transfer the Property

The process will vary depending on the type of property you're donating. For securities, you'll transfer them directly to the Foundation’s brokerage account. For other assets, you may hand over the property itself or get an attorney to help you transfer your ownership to the charity.

Keep Detailed Records

For tax purposes, maintain thorough documentation of your donation. This includes receipts, any appraisals, and records of the transfer. If your donation is over a certain value, you will also need to fill out IRSForm 8283.

Final Thoughts

Donating appreciated property is a win-win: you can support the vital work of FOCUS while enjoying tax advantages. Always consult with a financial advisor or tax professional to ensure this strategy aligns with your overall financial plan. Remember, the most rewarding aspect of this process is knowing that your contribution is making a meaningful difference.

Please contact us for more information — https://www.fmf.org/give