You’ve worked hard for your company over the years. As a result, you’ve reaped the benefit of appreciated company stock. This scenario is one example our clients look for our guidance with. This stock sometimes represents a large portion of their portfolio. They look to figure out how this is impacting their financial plan and what options they can take. One strategy we can explore is referred to as a donor advised fund.
What is a donor advised fund?
A donor advised fund is a tool used to optimize charitable donations. On top of that, the donor is also able to obtain tax benefits. To establish the fund, a donor contributes either cash or stock. As a result, they become eligible for an income tax deduction for charitable donations. Once inside the fund, any gains on the investments are tax-free. Lastly, when the donor is ready to contribute to qualified charitable causes, they feel passionate about, they can do so.
How Does Donating to Donor Advised Fund Benefit Your Tax Situation?
If an appreciated stock is used to donate to a donor advised fund, multiple tax benefits can result. First, when the appreciated stock is donated, the value contributes to the individual’s charitable donations for the year. There are limitations to the amount a taxpayer can benefit, but this can help the client itemize their deductions for the year. The second benefit has the potential even greater. After the appreciated stock is donated to a donor advised fund, it can be sold to diversify the assets and align with the investment strategy. When this happens, the donor does not owe the capital gains taxes. Depending on the amount of gains, this perk can be extremely favorable.
Typically, clients who have high concentrations in their company stock have two concerns. One, their position in the company stock is increasing their risk level dramatically and they would like to diversify it away. Second, they need to find a strategy to sell the stock in a tax efficient manner. If you plan to donate to a charitable cause, or already give regularly, the donor advised fund is the perfect tool for this to supplement your plan to diversify. To learn more about donor advised funds, also be sure to give my prior blog on the subject a read.
There are different rules and limitations that come with this strategy. We are happy to work with you to help determine the most beneficial approach for you and your financial plan. While we are not tax professionals, one distinct differentiator that separates us from other financial advisors is the level of tax planning we implement into our clients’ financial plans. We strive to optimize tax efficiency and will work side-by-side with trusted tax professionals in order to do so. If you have questions about planning strategies around your appreciated stock, a great place to start is by emailing me at firstname.lastname@example.org. Thanks for reading!
– Matt Johnson
Falcon Wealth Advisors is registered with HighTower Securities, LLC, member FINRA and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.
This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.
All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and HighTower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.
This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of HighTower Advisors, LLC, or any of its affiliates.