Maximizing your charitable dollars through donations of appreciated stocks and mutual funds.
December 18, 2008
Sponsored by Fidelity Charitable Services®
For most Americans, charitable giving is an essential part of their lives. Eighty-three percent of Americans give annually to charity1 and such giving is a significant part of spending at all income levels. How the vast majority of all charitable giving is done is in the form of cash. The latest available Internal Revenue Service data2 show that charitable giving by individuals itemizing deductions amounted to $166 billion, with 74 percent of the donations ($123 billion) being cash. Findings from Fidelity Investment’s report, “Smart Giving: Maximizing Your Charitable Dollars Through Donations of Appreciated Stocks and Mutual Funds,” reveals there is a more tax-efficient way of giving that could save Americans billions of dollars or allow them to give billions more instead.
Fidelity reports that 10 to 20 million American households have the potential to realize additional tax savings of $2.2 billion to $4.5 billion annually3 by gifting appreciated securities — stocks, bonds, mutual funds — to charity or to a donor-advised fund instead of gifting cash directly to charities.
The research uncovers that most of the barriers to taking advantage of this straightforward strategy are a result of lack of awareness of the benefits. Only three in 10 Americans surveyed (32%) were aware of the tax advantages of donating appreciated securities. Additionally, respondents said they didn’t want to give up their high-performing securities (not realizing they can immediately re-purchase them), there is too much paperwork, or their gifts are too many/too small. Only seven percent of respondents cited not having appreciated securities. Based on a random sample of 50,000 Fidelity customer households with at least $25,000 in securities, over 90 percent of the households can donate $10,000 completely in appreciated securities. For the year 2004, the median federal tax savings that could have been realized from donating $10,000 in appreciated securities from this sample was $449. This tax savings is over and above the tax savings from making a cash donation.
Additionally, the research discusses how most of the barriers to gifting with appreciated securities can be addressed with more efficient giving vehicles, specifically donor-advised funds (DAFs).
Donor-advised funds enable one donation of securities for an immediate tax benefit that can then be converted into many smaller donations to charities over time and have little paperwork when compared to giving directly to a charity. Though a simple and effective strategy to more tax-efficiently give to charity, only a small percentage of charitable donors (3%) own DAFs. Ninety-four percent of respondents either haven’t heard of a DAF at all or only know a little bit about them.
The report concludes that investor education is needed to close this knowledge gap about the tax savings opportunities of gifting with appreciated securities and the ways that donor-advised funds make such giving easy. Such an effort could help millions of American households sustain — and perhaps increase — the giving they already intend to do, ultimately benefiting America’s charitable organizations.
For more information about how to make charitable planning part of your client offering or to request a complimentary copy of Fidelity’s study about tax efficient giving through appreciated securities, call a Planned Giving Specialist at 1-800-280-6357 or visit www.FidelityCharitableServices.com today.
1 A 2006 online survey of 2,939 U.S. adults conducted by Harris Interactive® between December 4 and 6, 2006 for The Wall Street Journal Online.
2 Latest available IRS data is for tax year 2004.
3 Based on itemized cash giving of $123 billion, tax savings calculations with Fidelity accounts, and estimates of the percentage of households who own stocks or mutual funds outside of a retirement account among those households who itemize deductions.
The Fidelity® Charitable Gift FundSM is an independent public charity with a donor advised fund program. Various Fidelity companies provide non-discretionary investment management and administrative services to the Gift Fund. Charitable Gift Fund is a service mark and Giving Account® is a registered service mark, of the Trustees of the Fidelity Investments Charitable Gift Fund. Fidelity and Fidelity Investments are registered service marks of FMR LLC, used by the Gift Fund under license.