Factors To Keep In Mind With Charitable Giving

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OCEAN CITY – Americans are generous people. Look at the $250 billion donated to nonprofit organizations in a recent year, according to the giving USA Foundation.

One downside to that giving, though, is that many donors — and their favorite charities — may be missing out on some important opportunities because charitable giving hasn’t been incorporated into an overall tax-planning strategy.

Launching a master plan for giving in the coming year can help you leverage your donations for tax, income or other financial benefits while possibly yielding better results for a charity, says David Ratcliffe, Director of the Merrill Lynch Center for Philanthropy & Nonprofit Management.

For example, assume you want to make a $10,000 donation to a qualified charity. If you write a check, under most circumstances, you can take a dollar-for-dollar tax deduction. But say you own $10,000 worth of stock that you paid only $3,000 for; if you sold that position, you would have to pay capital gains tax on $7,000.

At the 15 percent long-term capital gains rate, that’s $1,050. But if you donate the stock, you may recognize a $10,000 charitable deduction. You can buy back the stock with the $10,000 you earmarked for the charity, avoiding the capital gains tax liability.

Another strategy is to offset big taxable events, such as a bonus, by making contributions in that tax year to a donor-advised fund. The donation is deductible in the year it is made, but you can stretch out charitable gifts from the fund for as long as you like. And once the donation has been made, the assets may be managed in a tax-exempt environment until distributed to one or more charities. That tax-free growth can mean even more money for your favorite charities.

"Philanthropy can offer you a high level of personal satisfaction and carry substantial financial and family benefits," Ratcliffe says.

Talk to your financial advisor about a strategy that meets both of these important goals.

(A Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-8520.)

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