Ways to Give When Markets Are Up or Down
Charitable giving is a wonderful way to give back to the community and support causes that you believe in. You may wonder about the most tax-efficient ways to be charitable when markets are high or low. In this article, we cover charitable giving strategies to help you plan your donations and maximize the benefits of your giving.
When Markets Are High
When the stock market is up, you may want to consider donating highly appreciated stock you’ve held for at least a year to charity. This strategy allows you to give the appreciated stock directly to a qualified charity without selling it first.
By donating the stock, you can avoid paying capital gains taxes on the appreciation, and the charity can sell the stock without incurring taxes.
Another strategy to consider when the market is up is a qualified charitable distribution (QCD) that satisfies, in full or in part, your required minimum distribution (RMD) for the year.
If you are at least 72 years old (the RMD age has increased to 73 starting in 2023), you are required to take a specified amount from certain IRAs each year, and that amount is subject to income taxes. However, if you make a QCD, you can help satisfy your RMD requirements and avoid paying taxes on the distribution.
You can learn more about QCDs in our article “How to Use Qualified Charitable Distributions to Give to Charity.”
When Markets Are Low
When the market is down, it is generally better to donate cash on hand and wait for the market to recover and your investments to appreciate once again. In the meantime, you might consider strategies to help optimize your short- and long-term finances, such as tax loss harvesting and Roth conversions.
Tax loss harvesting involves selling investments that have declined in value to offset gains from other investments and income taxes. You can carry forward any remaining losses into future years indefinitely. If purchasing new investments, you will want to be aware of the wash-sale rule.
A Roth conversion involves converting a traditional IRA to a Roth IRA. You owe taxes on the amount converted. However, the value of your account is lower during a down market, so you pay fewer taxes than you would in an up market.
You can learn more about Roth conversions in our blog “Down Market? Consider a Roth Conversion.”
Final Thoughts
Charitable giving can be a rewarding way to support causes you care about. Consider consulting with a fiduciary financial advisor to determine the right strategies for your situation and goals.
Schedule a complimentary, 15-minute chat with a fee-only, fiduciary financial advisor today to discuss your personal situation.
This material was generated using artificial intelligence (ChatGPT) and edited by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor with offices in Roseville and Folsom, CA, and Lehi and Logan, UT. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.