The holidays are nearly upon us, and, with markets near all-time highs, we all have a lot to be thankful for. It’s the season for giving thanks, recognizing good fortune, and giving back to those who are most in need.
We know that many of you make generous gifts to charity during holiday season, and you help your clients make gifts as well. And we’ve heard time and time again that you’d love to help your clients give appreciated shares through Betterment for Advisors. Today, Betterment for Advisors is proud to announce that all taxable accounts with appreciated assets will be able to donate long-term investments starting Nov. 28, 2017—Giving Tuesday. This feature is one that we are particularly excited to help you share, since we know that advice on charitable gifts can be a major value add to your clients.
Now, before your clients pull out a credit card to make a donation, you can offer advice on a smart giving strategy that can help your clients maximize their gifts.
Gifting securities helps maximize clients’ charitable impact.
As a review, there are two tax advantages you can offer your clients when helping them make a charitable donation using securities:
- Eliminating capital gains tax on donated shares
- Deducting the value of the gift on your tax return
As an example, let’s say one of your clients makes $150,000, is single and lives in New York. Her income places her into the current (2017) 15% long-term capital gains bracket, the 28% federal bracket, and the 6.65% state bracket. If you help her donate $3,000 worth of shares to a charitable organization, and she bought those shares two years ago for $2,100, then she would save $194.85 in capital gains taxes, and the full $3,000 could be deducted on her tax return, saving $1,039.50 in taxes. Overall, you can help her save about 19% more in taxes.
|Value now||Purchase value, two years ago||Capital gains tax saved||Deductible amount on tax return||Total potential tax savings|
|When you plan to donate shares||$3,000||$2,100||$194.85||$3,000||$1,234.50
This is 19% more than a cash donation.
|When you plan to donate cash||$3,000||n/a||n/a||$3,000||$1,039.50|
Table 1. The table above assumes the following about the hypothetical person donating to a charity: (1) The person itemizes the deductions on their tax return. (2) The federal Alternative Minimum Tax does not apply to the person.
Betterment believes donating securities should be as easy as donating cash.
Given all the tax benefits, the only logical reason why so many people exclusively donate cash to charity is because giving cash has long been far easier than donating invested assets. Even after the rise of online brokerages like Fidelity and E*Trade, the process for making stock gifts is often a hassle, very time-intensive, and thus, advisors usually only spend time helping higher net worth investors make tax-efficient gifts.
With your help, we think we can change that. We want to make it delightfully easy to help your clients transfer their shares to a charity. We don’t want any advisor to spend extra time assessing tax lots and making tax-savings calculations. No snail mail, and no more walking into an office.
We want you to be able show your clients that giving securities is no more difficult than giving cash.
As part of the Betterment for Advisors platform, we’re doing four main things behind the scenes to enable easier donations of appreciated shares.
- We track how much of a client’s account is eligible to give to charity. Since most clients should usually only donate assets that they’ve held for more than one year, we don’t expect you to sort through all the assets and pick which ones you can give. Tracking those assets is part of our service. Learn more about how we do that here.
- We estimate the tax benefits of your gift. Before a client completes a donation, you (and the client) will be able to see the estimated tax benefits, including the deductible amount and the capital gains taxes saved.
- We move assets from your client’s account to a charitable organization’s account without any paperwork. As you probably have experienced, charitable gift transfers can can take significant time and paperwork moving from one brokerage account to another. Betterment is offering charities investment accounts at no-charge (up to $1 million) to make the gift process seamless.
- After the donation is complete, we provide a tax receipt to the client.1 The receipt is emailed to both you and the client, and it will also be available in their Betterment account at all times. What’s more, we take much of the heavy lifting in reporting off of the charity. This means they can devote their resources more efficiently to their cause, rather than to administrative tasks.
Charitable giving works in tandem with Tax Loss Harvesting+.
Betterment’s charitable giving service automatically works in tandem with Betterment’s other tax strategies. Here’s an example of how the service works with Tax Loss Harvesting+.
Imagine a client started with you two years ago. If any holdings in their portfolio took a loss in the first year, Tax Loss Harvesting+ would save the client taxes that year by providing them with a tax deduction on securities’ losses and deferring the payment of tax to the future.
If, by the calendar year after the harvest, those same shares appreciated above the purchase price, then they would be eligible to give to charity. You could then help them avoid the tax altogether by eliminating the capital gains tax they would otherwise be subject to using donation.
Our service for donating shares to charity is designed to help you implement a closed-loop approach to tax optimization that you can offer any client with minimal work.
Keep your clients’ goals on track by encouraging redeposit.
Once a client makes a donation, the platform will ask the client to make a new deposit to replenish their investment. By encouraging your client to redeposit, you can make sure to tax-efficiently rebalance the account and keep it on track to meet its goal.
If you and your client decide to not redeposit after giving, the account balance will, of course, remain lower, and we may rebalance the account as usual.
How to Help Your Clients Make a Charitable Donation
To help your clients make a charitable donation in their account, you can simply have them navigate to the Transfer tab and select “Give to Charity” starting on Nov. 28. If the client has appreciated shares held for more than a year, he or she can specify an amount to give and select which charitable organization will receive the donation.
As we launch this new service, we’re partnering with a selection of charities, but we’re dedicated to adding new charities in the future. Your clients will be able to choose from the following charities:
- Wounded Warriors Family Support
- Hour Children
- Against Malaria Foundation
- Save The Children
- Feeding America
- Big Brothers, Big Sisters of NYC
- World Wildlife Fund
If you or a client doesn’t currently see a charity they’d like to donate to, they can request a new charity be added to Betterment by navigating to the “Give to charity” option in the “Transfer” tab of their account. Where they can select a charity, there is also an option to request a new one at the bottom of the page.
This article was published on November 15, 2017