Originally Published 12/17/2019
Give more money to the charities you care about with this tip!
It is Christmas season at Beratung, and with that Christmas season, it gets us thinking about one of our core values, Charitable.
It is not only a core value for us, but also core value for a lot of the clients we work with. Especially this time of year, people start thinking about how to give to charities they care about.
A lot of times when our clients are thinking about giving to a charity their initial reaction is to take money out their bank account and write a check. That's great because that money is going be used to make a difference.
However, you might want to consider a tax tactic that could be a good move for you.
As I write this blog, the Standard and Poor's 500 index as the close of business on December 13th is up over 28% for the year and we're coming off a long bull market that has posted a lot of returns.
This means many people may be holding investments that are worth more than what they paid for them. That difference of what you paid for the investment (also called a cost basis) to the current value (also called a market value) is taxable.
If you have held a position for longer than 12 months, it's taxable at what we call a long-term capital gain. Long-term capital gains taxes are generally favorable compared to regular income taxes. They range anywhere from 0 to 20% at current law, but they are still a tax that has to be paid.
Example: You bought a position for $2,500 a few years ago, and because of the gains, it's worth $5,000. That difference between the $5,000 current value and market value is $2,500 and its taxable as a long-term capital gain since it was held for longer than 12 months.
Let look at two scenarios:
- In scenario one, You give $5,000 from your cash accounts to your favorite charity. You may be able to write that off as a deduction, if you itemize your taxes.
- In scenario two, you give the investment that is worth $5,000 today that you paid $2,500. because you gave it to a charity you don't have to pay that long term capital gain and because that charity is a nonprofit they don't have to pay that capital gain which means there's no capital gain consequences by giving that money to a qualified charity. You can still deduct this amount if you itemize your taxes.
Why is that important? Because if you do not have to pay the long-term capital gain to the federal government, you could give more money to the charities you care about, and they could make a bigger difference.
This is one of small ways that we help educate as part of their comprehensive personalized financial plan. If we discover that one of their goals is to be charitable, this may be one of the tactics we help them implement in their plan.
Maybe this makes sense for you, but we feel the only way to know if this tactic is for you is to create a comprehensive financial plan that looks at your individual goals; that educates and empowers you to pursue those goals to help you live a fulfilling life.
That is what the Beratung Advisors team is here for, to empower clients to make informed financial decisions so they can pursue their goals to help them live a fulfilling life!
We would love to talk to you and help you create a comprehensive financial plan and help you if you're charitably minded, give more money to the charities you care about.
If you found this useful, we would love to hear from you! Send us an email.
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You can also always share this with your friends because they might need the same information.
Have a Merry Christmas!
The S&P 500 (Standard and Poor's 500) index is unmanaged and cannot be directly invested into. Past performance is no guarantee of future results. This is meant for educational purposes only. It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Please consult with a financial professionals regarding your personal situation prior to making any financial related decisions. Consult your financial advisor for a breakdown of the fees associated with these services.