I’m coming up on my end of year donations, and I want to make them as efficient as possible. This includes getting the biggest financial benefit for myself, whether it’s maximizing taxes saved or bonus money earned. I see two main ways to get added benefit from my donations. Anybody know of other options or see any flaw in my reasoning?
Option 1: Credit card bonuses
I could put donations on a new credit card and use that to hit a minimum spend requirement. The best bonuses come in when you spend more money (typically $3,000 in 90 days). I don’t spend nearly enough on my own to hit that. I don’t have the energy to manufacture spend with gift cards or wire transfers either. Throwing my donations on a new card would help get me the $3,000 level bonuses.
Caveat: This isn’t the only way to hit the spend. I could pay rent with a service that charges a 2.5% fee, and once a year, I could pay upfront for a gym membership.
Option 2: Donate stock
Another efficient way of donating is giving stock that has increased in value directly to charity. This way you don’t need to pay capital gains tax before handing it over.
One trick I learned while researching: donate appreciated stock, then buy the same amount so you reset the cost basis.
Caveat: This provides no personal benefit if your capital gains tax would otherwise be zero. I likely will be in this category as long as I’m FIRE’d.
Winner: It Depends
For 2019, when my LTCG tax will be zero, it makes more sense to use donations to hit a credit card spend and avoid the fees for paying rent with a card.
If I go back to work in 2020 and earn enough to push me out of the 0% bracket on LTCG, it might make stock donation a better deal. That would depend on how much the stock has appreciated, how much it would save on taxes, and how big of a cc bonus it could earn.
Or, would a bonus still be better in a working year? Nobody’s making me sell my appreciated stock in 2020. If I’m working, I can cashflow my expenses easily. Then I can wait until 2021 to sell those shares at 0% tax.