A better plan would be for Judy to donate $10,000 worth of Stock ABC directly to her charity of choice. By transacting a direct donation of appreciated assets, the charity gets the full $10,000 since it isnt required to pay capital gains tax on Judys assets. Plus, Judy gets to take a deduction of $10,000 on her tax bill. Now that is what we call a win-win situation.
Giving through a Donor Advised Fund
Another option for those of you who like to retain control in both investment selections and how funds are distributed is a Donor Advised Fund (DAF). Think of this as a personal savings account for money you plan to donate to charity. These giving vehicles are relatively easy to set up, and the benefits may be significant.
Contributions can be made to the DAF as often as you want; Money can remain in the fund to be invested (and potentially grow), and you direct grants from your account to qualified charities on your own schedule.
A DAF also can reduce paperwork that can come with charitable contributions. If youre donating 100 shares of a security, for example, a DAF makes it easier to donate the proceeds to 20 charities at a time, instead of going through the administrative work you may encounter with direct donations.
Finally, a note for those of you who have good intentions but tend to procrastinate: As its nearing the end of the year, and if you havent yet decided which charity youll donate to, but still want to maximize your tax break, you can buy yourself a bit more time by contributing assets to a DAF and claiming the deduction for this year. You dont have to wait until the funds are distributed for the tax benefit.
As ever, this shouldnt be taken as a substitute for individualized tax advice. We recommend that you discuss your specific situation with a qualified tax adviser.