Appreciated Stock, DAFs, and QCDs Explained

Transcript

If you gave money to charity last year, or to your church, this video is for you, especially if that money came straight out of your checking or savings account. I'm Nick George, a certified financial planner, and I want to share a strategy that can make your giving go a lot further without writing a bigger check.

Let me tell you about a couple, we'll call them Sarah and Jim. Every year, Sarah and Jim give $10,000 to their church. They send the money, feel good about it, and move on. And they should feel good about it, generosity is a great thing. But a question they'd never thought of until I mentioned it was, is that the best way to give? Surely there's no wrong way to give, right? You'll see what I mean.

Rewind to January. Sarah and Jim are sitting across from me, and I ask if they give to any charities. Sarah lights up, tells me about their church and how much it means to them, and how they transfer $10,000 from their checking account to their church every year like clockwork. I love their generosity, and I'm sure the church does too. And that's when I semi-rhetorically asked if this was the best way to give, not expecting a real answer, but to share an alternative idea.

The idea is this: instead of giving cash, you give stock. Specifically, stock that's gone up in value since you bought it. Normally, when you sell stock that's gone up, you get taxed on the gain. That's called capital gains tax, and depending on your income it can range somewhere between 15% and 24%. But if you give the stock directly to a charity or non-profit like a church, instead of selling it, you skip that tax entirely. The charity gets the full value, you get a deduction for the full value, and the capital gain you were going to owe tax on someday is now gone.

Let me show you with Sarah and Jim. Years ago they bought 50 shares of Apple stock, about $2,000 total at the time. Over time that investment grew, and today it's worth $10,000. So those 50 shares went from $2,000 to $10,000, and sitting inside that position is an $8,000 capital gain. We already know they plan to give $10,000 to their church this year. That decision isn't changing. The only thing we're looking at is how they fund it.

Option one is what they've always done. They send $10,000 from their bank account to the church and don't touch the Apple stock, which just continues to sit there with that $8,000 gain potentially growing over time. Option two: instead of sending cash, they transfer those shares of Apple stock directly to the church. The church receives $10,000 worth of Apple stock, immediately sells it, and because they're a non-profit, they don't pay tax on the gain. And neither do Sarah and Jim. Nobody pays tax on that gain. Pretty cool, right?

Now, Jim loves the idea, but he doesn't want to get rid of the Apple stock he bought years ago. It's done well, and they just don't want to let it go. So I mention to Jim, if you still want to own Apple, you absolutely can. We'll take the $10,000 from your bank account, the cash you were going to give the church, and instead transfer it to your investment account and buy Apple again. We can buy the same 50 shares worth about $10,000 today. They're right back where they were in terms of ownership, but now their cost basis is $10,000 instead of $2,000. We're holding the same amount of Apple, we just reset the cost basis. That $8,000 gain that used to be sitting there is gone. At a 15% capital gains rate, that's about $1,200 of tax they've now avoided, without changing the number they gave. Same $10,000 gift, different outcome.

Of course, the bigger the gift, the bigger the impact. If you're only giving a few hundred dollars a year, which is great, any generosity is a beautiful thing, the juice probably isn't worth the squeeze. It's a lot of effort, and there are some advantages to giving cash. But once you're consistently giving $5,000 or more, it starts to become worth paying attention to. And when you get into $25,000, $50,000, and above $100,000 in annual giving, this becomes a very meaningful strategy. I've sat down with business owners and retired executives writing huge checks to charity every year, all while sitting on investment accounts full of appreciated stock. Nobody showed them an alternative that resulted in less money going to Uncle Sam. In my opinion, that's a win for everyone.

Now let's fast forward a few years. Sarah and Jim are a bit older, I've gotten to know them well, and Jim mentions he's expecting a pretty high bonus this year. That felt like the perfect moment to share two additional giving strategies. I'll keep these high-level, because if either applies to you, it's best to talk to your advisor to go further.

The first is called a donor-advised fund, or a DAF. The easiest way to think about a DAF is a separate account specifically for giving, almost like a charitable savings account. Instead of giving $10,000 a year directly to their church, Sarah and Jim could take several years of planned giving and do it all at once. After a few discussions, they decide to take five years' worth of giving, $50,000, and transfer appreciated stock, along with a little cash, into a donor-advised fund in one year. That gives them the full tax deduction right now, but they don't have to send all $50,000 out. They can still give $10,000 each year to their church just like always. The only difference is those gifts now come from the donor-advised fund instead of their checking or investment account. From the church's perspective, nothing changes. From Sarah and Jim's perspective, they've pulled the tax benefit forward into a year where it matters much more, the year Jim receives that big bonus and has the highest income they've ever had. It's going to save them thousands in taxes.

I then briefly mention the second strategy, which comes into play a little later. It's called a qualified charitable distribution, or QCD. Once someone is 70½ or older and has an IRA, they can send money directly from that IRA to a charity. That distribution doesn't show up as taxable income, and when Sarah and Jim are taking required minimum distributions, it counts toward those as well. When you take money out of an IRA, it's taxed as income, which is quite a bit different from money taxed as capital gains. So for Sarah and Jim, we use the donor-advised fund today to cover the next five years of giving and get a big tax deduction in a meaningful year. After five years, Jim is right around 70, and from that point forward their giving can come from an IRA using qualified charitable distributions. For people who have an IRA and are consistently giving in retirement, this is one of the best ways to do it.

A few recent rule changes make this conversation even more relevant now. When Congress passed the One Big Beautiful Bill Act, it changed some of the rules around charitable giving starting this year, in 2026. At a high level, here are three things every donor should know. First, there's a new floor for itemizers. If you itemize, you can only deduct charitable gifts to the extent they exceed half a percent of your adjusted gross income. What does that mean? If your household adjusted gross income is $400,000, half a percent of that is $2,000, so if you only gave $2,000 to charity, you'd receive no deduction at all. It's almost like a deductible on insurance. You have to clear that floor before the tax benefit kicks in. Second, for the highest earners in the 37% tax bracket, the tax benefit of charitable deductions is now capped at 35 cents on the dollar instead of 37. It's a small change, but if you're giving a lot, it can add up. Last, and this is good news for everyone taking the standard deduction, you can now deduct up to $1,000 if you're single, or $2,000 if you're married, for cash gifts to public charities. This is brand new as of this year, and it applies whether you itemize or not. It's what we call an above-the-line deduction.

Before I leave you, here are four mistakes to avoid. First, and this is important, make sure the stock you're donating has been held more than a year. We want long-term capital gain status. Second, and equally important, do not sell the stock first. You must transfer the shares first and directly. The charity or church sells them, not you. It has to be a legitimate transfer. Third, give yourself some time. Since it's a direct transfer, this process operationally takes time. And fourth, keep good records. For any non-cash gift over $500, you need to tell the IRS, and you do that by filing Form 8283 with your tax return.

With Sarah and Jim, nothing really changed on the surface. They just used a different asset to do it, and that one change saved them over a thousand dollars in taxes. If you give regularly and have built up investments over time, this is absolutely something worth looking at. If you want help thinking through it, give me a shout. We'd be happy to brainstorm with you. Until next time, my friends.

Hosted byNick GeorgeCFP®, ChFC®, CLU®, IWA™FounderView bio →

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