Charitable strategies

Revisiting Tax Strategies: Part 1

The run up in stocks over the past year has created situations in which anywhere from fifty to eighty percent of the value of some of your securities (stocks, ETFs, or mutual funds) may be composed of Unrealized Long-Term Capital Gains. At some point these gains will need to be taken as we rebalance. Here’s a great way to avoid taxation on these capital gains while meeting your charitable goals.

This approach is facilitated by an account called a Charitable Giving Donor-Advised Fund. These are entities that are registered as 501(c)(3) organizations with the IRS. They can receive donations of your securities as a Charitable Gift, giving you a tax deduction in the year the gift is made.

Why would you want to give them your appreciated securities? Because they will sell the holding upon receipt and invest the money however you direct. Then, you will then have a mechanism to make gifts (called grants) to the 501(c)(3) organizations of your choice – straight from your cell phone!

After the funds are transferred to your charitable giving account, there is no time limit for making gifts out of the account. Whenever you direct them to make a gift, the charity’s contact information is saved in their system so that you don’t have to re-enter it each time you make a future gift.

The cool part

But wait, here’s the cool part – if you use the Fidelity Charitable Giving Donor-Advised Fund, the account is linked to your Non-Qualified Investment Account. The gift fund can show you which Lots of which Holdings give you the greatest tax savings for your gifts! This helps you reduce or avoid the capital gains tax on these highly appreciated securities! Yet, you get the full value of the gift as a deduction.

You can fully deduct the value of these gifts so long as your annual gifts don’t exceed 30% of your Adjusted Gross Income (AGI). So, if you have an AGI of $100,000, you will want to limit your gift of appreciated securities of up to $30,000 in that year. One item to note is that you cannot use these donated funds for gifts that may provide you with a personal benefit – such as tickets to a charity gala.

The key to this strategy

Instead of you giving cash to your favorite charities, give securities to your charitable gift fund and let them use your money to make those gifts. You then replace those securities you gave away with the cash you would have given the charities in the first place. Over time this strategy will dramatically change the potential tax liability on your portfolio.

There is another benefit from using Charitable Gift Funds. They give you access to extensive charity databases (GuideStar, Charity Navigator,, Giving Compass and others). This allows you to look at the charities’ IRS filings and information on how they use donations, how much they pay their executives and how much money they have on hand. It also gives you governance information, including information on their Board Members. This allows you to make sure the organizations that you support reflect your values in what they do with your money, not just what they promote in their marketing materials.

In the future, I’ll discuss other tools and techniques you may want to consider. Tax law changes in the past couple of years have turned old strategies upside down. Stay tuned.

If you need additional information, simply contact your primary advisor. You can explore information on the Fidelity Charitable Donor-Advised Fund by going to

Rick Adkins, CFP®, ChFC, MBA

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