A better way to give: Donate stock instead of cash

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As we near the end of 2016, many people are deciding to make significant contributions to their favorite charities. With the stock market at record highs, those with investment portfolios have created a significant amount of wealth and may want to donate some of their wealth to help those who are less fortunate.

But before anyone writes a check and moves on, I'd like to recommend an alternate strategy that can help people increase their charitable giving and save even more money on their income taxes.

Instead of giving cash, people with investments in stocks, bonds and other securities they've held for at least one year can donate those that have appreciated in value. This will result in significant income-tax savings. In fact, donating stock saves even more taxes than donating cash, since there is no capital gains tax when appreciated securities are given to a nonprofit.

Here's an example of how this works for an individual in the highest federal tax bracket who lives in a state with a 6 percent state income tax:

• By making a $10,000 cash donation, they will save $4,500 in taxes.

• By making a $10,000 donation in stock that has doubled in value, they will save $5,990 in taxes, including $1,490 in future capital gains taxes.

While the benefits of this charitable-giving strategy are clear, many people that have held stock in a particular company for many years may have an emotional tie to these holdings and are reluctant to part with them. They may not feel comfortable selling an asset they bought 20 years ago or that was given to them by a family member. But there is a way to donate stock to charitable organizations and still retain those ties.

Leveraging your charitable giving

For example, if your great-grandfather gave you 500 shares of Coca-Cola stock 50 years ago, the original cost basis of the stock is less than $1 per share. By donating these shares to your favorite nonprofit, that's a $20,000 donation that is exempt from all capital gains taxes.

If, however, the desire is to keep Coca-Cola stock in the family, a person can simply buy another 500 shares at today's price, which is approximately $40 a share. But now the cost basis for taxes on future gains is $40 per share instead of $1, which will translate into a major savings on capital gains taxes down the road.

For those looking for a long-term charitable-giving strategy, I have one more recommendation to consider.

Many business owners, professionals and corporate executives that have earned significantly more money this year compared to previous years are likely wondering: "How do I keep as much of my earnings as possible and still reduce my taxes?"

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Anyone in this position should consult with a financial advisor and consider setting up a donor advised fund. This charitable-giving tool enables donors to make a charitable contribution, receive an immediate tax benefit, and then give away this money to their favorite charities over time.

For example, a person can give $20,000 of cash or appreciated securities this year to a donor-advised fund and spread out the distributions to charities over several years. But by setting up the fund this year, they will receive a $20,000 deduction on their 2016 federal and state income-tax return.

I've seen the benefits to people in many communities from a comprehensive giving strategy. For people fortunate enough to make a good living and donate some of their earnings, a long-term strategy can help you achieve the twin goals of helping those who are less fortunate while reducing your income-tax bill.

— By Dave Polstra, co-founder and partner at Brightworth

This story is part of NBCU's Share Kindness. Follow the series on Facebook, Twitter and Instagram. #ShareKindness