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Financial Fitness: Well-chosen charitable gifts are a win-win

As we approach the holiday season, you may be thinking about ways to put your money where your heart is.

Specifically, you might be pondering which groups you should support with charitable gifts. And as long as you choose groups that meet the right criteria, your generosity can also be rewarding to you, in the form of tax benefits.

To begin with, you’ll want to make sure you are giving to a reputable charity. That means you’ll need to ask some questions. How does a group measure its effectiveness? Is it devoting as much of its contributions as possible to the actual work of the organization, or is it spending too much money on administrative costs? Generally, a worthwhile charity should spend at least 75% of its income on programs. You may be able to find this type of information on a charitable group’s annual report and its website. You can also go to the website of one of the agencies that evaluates
charitable groups. On these sites, you can get a lot of information dealing with a charity’s
effectiveness, income, spending and other topics.

You can do more than simply write a check, however. If you have stocks that have grown
significantly in value, you may want to donate them to a charitable group. You will be allowed a charitable deduction for the full fair market value of the gift on the date of the transfer, even if your original cost was only a fraction of today’s value. Furthermore, you will avoid the capital gains taxes you’d have to pay if you sold the stock, provided you’ve held the stock for at least a year.

If you do contribute appreciated stocks, you will want to be aware of the effect your donation has on your portfolio.

If you were to give a sizable amount of growth-oriented stocks, would it affect your overall growth potential? Conversely, if you are primarily giving away relatively conservative, income-producing stocks, would it end up moving your portfolio in a riskier direction? When donating stocks, if at all possible try to do so in a way that does not harm your portfolio’s balance.

Whether you give cash or appreciated assets, you’ll need to make your gift by Dec. 31 if you’re going to deduct it on your 2017 taxes. So be as generous as you can afford, think about the effect of your gift on your own financial situation – and be prepared to act soon.

Deborah Leahy is an Investment Advisor at Edward Jones. Member CIPF deborah.leahy@edwardjones.com

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