Optimize Your Tax Return by Donating an Investment
It’s a few months until April, but as the year draws to a close, it’s time to start preparing our finances for tax season. If you want to optimize your return or pay less taxes next year, you can get a deduction by donating your investment to charity.
If you own an investment that increases in value over time, you usually have to pay taxes on the amount you earn after selling that asset. However, our tax law allows an exception to this rule: when you donate these shares to charity, you do not need to worry about taxes. And that has another advantage, as Motley Fool’s Dan Kaplinger explains:
Instead, the charity takes ownership of the stock and then sells the stock itself, and since the charity is a tax-exempt organization, it has no tax liability on the sale.
Better yet, if the equity gain meets the criteria for long-term capital gains, you are allowed to deduct the full market value of the stock at the time of the gift. This gives you a deduction even from the amount of profit on which you avoided paying capital gains tax, which essentially gives you a double tax benefit on the gift.
This same loophole, on a larger scale, has generated several controversies . Some companies have reportedly set up their own pseudo-charitable organizations to which they “donate” their investments, but in reality, charity is just a tax haven. However, for the average person who legitimately donates to a reputable charity, this is a fair and legal way to get a tax deduction.
At the same time, this is not what you want to do with all your investments – the whole point of investing is to make money. But this is something to consider if you want to save on taxes. More tips on saving taxes can be found in the full Motley Fool post below.
5 Year-End Tricks to Increase Tax Refunds | Motley fool