How To Maximize Your Charitable Contributions

October 16th, 2017

The majority of investors are aware of the possible tax advantages of charitable donating. Indeed, many of us frequently write checks to our favorite organizations with tax benefits in mind as a secondary goal, in addition to supporting the organization's mission. Have you ever considered making a philanthropic contribution other than cash? Donating valued private equity interests rather of the cash connected with the sale of these investments allows you to make larger gifts to charity that are not lowered by taxes.

The benefits of contributing long-term capital gain property to a charity include:

  1. A gift of long-term capital gain property to a public charity is normally entitled to a fair market value charitable income tax deduction, subject to IRS limits.
  2. A donor of long-term capital gain property frequently does not receive capital gain recognition on the property's built-in appreciation. If everything is done correctly, the donor will not have to pay capital gains tax on the provided asset. Furthermore, as the seller of the item, the public charity would be exempt from paying capital gains tax.

Ben, for example, holds publicly traded ABC Company shares with an adjusted cost basis of $100 and a fair market value of $1,000.

  • If he sells the shares, he will have to pay $900 in taxed capital gain. Ben will get $785.80 in net profits from the stock sale, assuming a 20% federal capital gains rate plus a 3.8 percent net investment income tax rate and excluding any state or local income taxes.
  • If Ben contributes the after-tax amount to charity, the charity will get $785.80, and Ben will be able to claim a charitable contribution deduction for that amount.
  • If, on the other hand, Ben donates the ABC Company shares in-kind, the charity receives $1,000 and Ben is entitled for a $1,000 charitable gift deduction.

Recognizing this value, many charities now offer an automated mechanism for contributing shares, making it nearly as simple as donating cash.

Who does this strategy work for?

Many high-net-worth investors can benefit from this strategy for charitable giving. Private equity professionals, in particular, are in a prime situation to benefit from making charitable donations of privately held assets, as they often own a portfolio comprised mainly of private equity interests.

In addition, there is an added benefit to the individual when he or she donates private equity investments to a public charity. Because individuals typically hold the assets with a negligible or zero tax basis, if the asset is sold, a capital gains tax would be owed on nearly the entire value of the asset. This is not the case for donated assets, as those assets can pass to the charity without triggering a taxable event.


If you are thinking about donating private equity investments, it is very crucial to consult with your wealth adviser to establish the best time to make the contribution. If the entity is required to sell the private equity investment at a specific period, the contribution may be regarded an anticipatory assignment of revenue. Your wealth advisor will assist you in determining:

  • If the donation occurs prior to the signing of an agreement or letter of intent to sell the property. If this is the case, you will most likely not be taxed on the gain as the donor.
  • If the donation occurs after the signature of the sale agreement or letter of intent, but the sale is contingent, you may be liable to capital gains tax on the gain.
  • If the contribution happens after the agreement or letter of intent is signed, you will very certainly be taxed on the gain.


Private equity charitable gifts can have major advantages for both the donor and the organization. This method can be especially useful for private equity experts and other high-net-worth individuals who have a sizable amount of their net worth invested in private equity. The timing of the gifts, however, is critical to achieving the tax benefits associated with such a scheme. Your adviser will be able to walk you through the procedure and timetable.

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