Since you are on the NHMRS website reading this article, I suspect you already know the intrinsic benefits of paying it forward - helping others, fulfilling your personal beliefs/duties, feeling good, and improving the local and/or global community. However, there are two available tax benefits donating provides to also consider.
The first tax benefit most people are aware of: donations can be claimed on your income taxes. To get the credit you simply include your donation receipts when you’re filing your annual income tax return. You receive a 15% credit on the first $200 worth of donations and 29% on donations over $200. This credit is a non-refundable credit, meaning you won’t get a refund for your donations, but it will help reduce your tax bill as far down as $0.
The second tax benefit is one not everyone is aware of and that is reducing your capital gains liability.
Capital gains are the difference between what you invested, plus any reinvested dividends, and the current value. If you’re looking at your investment statement, that is the difference between the Book Cost or Adjusted Cost Base (ACB) and the Market Value.
For example, if your XYZ Corp. shares have an ACB of $10,000 and are now worth $20,000 you have a $10,000 capital gain and 50%, or $5,000, is taxable to you at your income tax rate - when you sell those shares you would have to report that $10,000 capital gain on your tax return.
However, if you donate all or part of the shares, as is, to a registered charity, you do not have to claim the capital gain on your taxes. The shares go to the charity along will the applicable capital gain. The charities sell them and are exempt from paying the tax when they sell the shares.
Back to our example, if you donated your XYX Corp shares to charity you get a $20,000 donation receipt which you can claim on your income taxes – reducing your income tax bill. You also eliminated your $10,00 capital gains tax liability.
This strategy also works for other investments that attract capital gains such as mutual funds and ETFs. Donating an investment is a great strategy for large income tax years, as you can use the donation receipt to help offset it. If your strategy includes making a larger donation of shares, there are tools available that disperse the money to charities over a few years.
By being strategic about your donations, you not only help the organizations to which you’re giving the money, but also yourself – allowing you more financial comfort and stretching out your gifting for years to come.
For this and more charitable giving and tax strategies contact KLT Wealth Management.
Written by Courtney Beach, KLT Wealth Management
Our thanks to KLT Wealth Management for sponsoring this year's Run for Relief.