Doubling Your Tax Break: Giving Appreciated Assets to PTA and PIE

[Note – this was written with Palo Alto CA public schools in mind, and specifically a pair of charitable organizations which help support those schools.  It applies just the same to any 501c3 charitable organizations, including similar organizations associated with other school systems as well as other types of charities altogether.]

It’s annual appeal time for the Palo Alto public schools.  As your kids return to school in Palo Alto, you’ll receive requests for funding for two charitable organizations which work to enhance the experience for all children in the Palo Alto public schools:  The PTA and PiE.

What are PTA and PiE?

PTA (Parent Teacher Association) is school-by-school (instructions below are for Escondido in particular) and pays for “stuff” – teacher grants for school supplies, sports, the Green Team, the science fair, performing arts, assemblies, plays, etc.

PiE (Partners in Education) is district-wide and pays for “staff” – teacher aides in the classrooms, the science program, Spectra Art (art teachers).

Both of these programs are essential to the success of our schools and our kids’ education.
Suggested donation amounts per child – and they are only suggestions – will be indicated to everyone at the beginning of the school year.

The Tax Break

And the best part (from a financial planning point of view) is that both the PTA and PiE are 501(c) charities — meaning that gifts to these worthy organizations may be fully tax deductible for most families who make contributions.

That means that if you are in, say, the 33% tax bracket, if you donate $1000, it’ll only “cost” you $670 because your taxes will be $330 lower.

But wait – there’s more!  You also get to deduct it on your state income taxes (and CA has pretty high state income taxes, too).  If you’re in the 10.3% bracket in California, that $1000 will only “cost” you $567 once you factor in both the CA and the federal deductions.  (Note that we are ignoring the potential deductibility of state income taxes on your federal taxes).

But the bottom line is that giving to the school is great for the kids and for your bottom (tax) line.

“Doubling” the Tax Break!

But wait! There’s more!

We assumed you donated cash (i.e., you donated by check or credit card).  What if there were a way to get even more tax benefit?  More than nearly doubling your gift to begin with?  Really?  There is.

If you happen to own any highly appreciated asset — for example, if you bought some stock a while ago before the stock’s price rose, so the stock is worth a lot more now than you paid for it — you may be able to get another layer of tax breaks by donating the appreciated stock directly rather than selling it off and donating cash.

How does this work?  Suppose, again just for the sake of example, we use that same $1000 donation, but rather than writing a check for $1000, you were to sell off some stock to generate the cash for your donation.

If you have stock that’s increased substantially in value, you already know that if you sell it, you don’t get to keep all the proceeds.  You will owe capital gains taxes on the amount by which it’s appreciated since you bought it.

For example, if you have $1000 worth of stock that you paid $200 for, you have a $800 capital gain.  Between Federal and state income taxes, you may owe as much as 30% or more in capital gains taxes, so when you sell off that $1000 worth of stock, you may owe $240 or more in taxes.

But if instead of selling off the stock, you simply donated it directly to a charity — not only would you get the full deduction on the $1000 donation (potentially saving you over $400 as noted in the earlier example), but you may also avoid the capital gains taxes (potentially saving you another $240 as noted just above).  So these programs get their full $1000 — but you save over $600 in taxes!

The Mechanics

The problem is that not every charity is prepared to receive appreciated stock, and the mechanics of transferring it over may be complex.  It certainly wouldn’t be worth all that hassle for most small gifts.

But there’s a solution to this problem, and one which offers additional tax planning and timing benefits, simplified record keeping, the ability to make anonymous gifts to charities, and more – in addition to facilitating donations of appreciated assets.

It’s called a “donor-advised fund” and there are literally thousands of them in the country.  Each donor-advised fund (“DAF”) is, in and of itself, considered a charity.  However, the primary goal for these DAFs is specifically to facilitate charitable giving by letting you make the donation to the fund rather than to the charity and then advising the fund that you’d like them to distribute money to the charities of your choice.

It sounds like an additional layer of complexity, but it actually really simplifies things since most DAFs are very well prepared to receive your donation of appreciated assets.  They’ll take care of liquidating the asset and getting your cash ready to distribute, but you still get both the tax break for the value of the gift — and you avoid the capital gains taxes, too.  And if you’re not prepared to distribute all of that cash immediately, you may direct the DAF to hang on to it on your behalf and invest it (and grow it) and then direct charitable gifts later on whenever you like.

Moreover, several of the largest DAFs are associated with places which may make it even easier for you to donate stock.  Fidelity, Vanguard, and Schwab all have associated DAFs and donating appreciated stock from, say, your Fidelity account to the Fidelity Charitable Gift Fund is almost trivial – you point and click on the website and it’s done.  They send you a tax form which you may include when you file your taxes to get your tax break, and, again, you not only get the tax break for the value of the gift you make to the fund, but you also avoid any capital gains taxes on the asset you donate, too.

Note that the tax break you get is at the time you make the gift to the fundnot at the time the fund makes the distribution the charity.  That means that you can also, for example, optimize your giving by making a charitable donation to your donor-advised fund account in a high-income-tax year, get the most valuable tax break you can, but then actually distribute the proceeds to the charities of your choice over time (including lower-income-tax years).

The Details You’ll Need To Direct Your DAF to Distribute Money to PTA and PiE

PTA CALIFORNIA CONGRESS OF PARENTS TEACHERS & STUDENTS INC
890 ESCONDIDO RD
STANFORD, CA 94305-7101
Tax ID: 23-7041270

PALO ALTO PARTNERS IN EDUCATION (Also Known As: PiE)
P. O. Box 1557
Palo Alto, CA 94302
Tax ID: 77-0186364

If you do just want to donate cash – you can write a check or pay online.  Whenever and however you make a contribution to a charitable organization, they should send you a receipt indicating the value of the contribution which you should hang on to for tax purposes.

To donate directly to Palo Alto PiE online, please visit <http://papie.org/donate/>
To donate directly to the Escondido PTA online, please visit <http://escondido.paloaltopta.org>

 

[Please note that this is not specific tax advice, and the rates and savings suggested above are approximations based on a variety of assumptions about one’s income and tax situation.  Your personal situation will vary.  Please consult with an advisor or tax professional.]

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