Discover the tax advantages Franklin Charitable Giving Program can offer, including the benefits connected with donating appreciated securities.
Understanding the tax benefits
Franklin Charitable Giving Program offers many tax advantages. In addition to receiving an immediate tax deduction, you have the flexibility to designate grants whenever it best suits you and the convenience of being able to more easily track and plan your charitable activities for future years.
Your contribution to the fund is an irrevocable charitable donation, fully deductible on the date it's received by the foundation, subject to any applicable limitations on charitable contributions. The extent of your deduction depends on the type of asset being contributed, as well as your particular tax situation.
Individuals should always consult their legal and tax advisors to discuss the personal circumstances regarding their income and estate taxes.
Cash contributions are eligible for a federal income tax deduction of up to 50% of your adjusted gross income (AGI) in the tax year in which the contribution is made. If your contribution exceeds this limit, you may carry the deduction forward up to five years.
Publicly traded securities
For publicly traded securities held for more than one year, the amount of the deduction is the mean value of the high and low prices of the security on the date of the contribution. You may generally deduct up to 30% of your AGI for contributions of appreciated securities held more than one year.
For securities held for one year or less, the deduction is based on either your cost basis or fair market value, whichever is lower. If your contribution exceeds the 30% AGI limit, you can carry the deduction forward up to five years.
All contributions to Franklin Charitable Giving Program are separate from your estate and therefore are generally not subject to estate tax or probate.
Any income to your donor-advised fund account resulting from investment growth is neither taxed to the donor nor is deductible as an additional charitable contribution.
One of the most rewarding benefits of donor-advised funds is the ability to contribute appreciated assets without incurring capital gains tax liability.
Did You Know?
Franklin Charitable Giving Program provides a more efficient way to contribute appreciated assets to charity. When you contribute them to your account, you can deduct their fair market value without incurring any capital gains liability—so you can give more, at less cost to you.
Consider this example
Phillip Smith invested $10,000 in an initial public offering (IPO) several years ago. Today the shares are worth $100,000. Phillip would like to use the shares to establish a scholarship program at his alma mater to give less fortunate students the chance to earn an education. He has two options: Phillip can sell all his stock and donate the cash proceeds to the university or he can contribute the securities to a Franklin Charitable Giving Program account.
If he sells the stock, his contribution would be reduced by $13,500 (assuming a tax rate of 15%) because his long-term capital gain is $90,000. In losing $13,500 to capital gains tax, Phillip's total contribution to the university would be $86,500, not $100,000.
On the other hand, if Phillip were to contribute the securities to Franklin Charitable Giving Program, the earnings on his appreciated stock would not be subject to capital gains tax—so he could give the full $100,000 to the university. Phillip's contribution would also have the potential to grow tax-free, making it possible for him to potentially give more over time.
The tax and giving advantages of donating appreciated assets are illustrated in the table below. The example assumes a contribution of $100,000 in long-term, appreciated property, with a cost basis of $10,000 (does not include liquidation costs).
|Sell securities and donate cash proceeds to charity||Donate securities directly to Franklin Charitable Giving Program|
Hypothetical example for illustration purposes only. Assumes the donor is in the 35% federal income tax bracket and long-term capital gains are subject to tax at 15%. State and local taxes, federal alternative minimum tax, and limitations on charitable contributions and itemized deductions are not taken into account. Please contact your personal tax advisor regarding your personal tax situation.
|Current value of securities||$100,000||$100,000|
|Capital gains tax paid by donor||$13,500||$0|
|Donation amount received by charity||$86,500||$100,000—charity receives an additional $13,500|
|Income tax savings to donor (35% bracket)||$30,275||$35,000|
|"Cost" of donation to donor||$83,225||$65,000—you save $18,225|
For US residents only.