Nov 7, 2021 Did You Know You Can Donate Stock In Israel Tax-Free?
In the past, if someone in Israel wanted to donate stock to an Israeli charity, they first had to sell the stock, pay the tax on the gain, and then donate the after-tax proceeds to the charity of their choice. They couldn’t just donate the stock directly. Fortunately, this is no longer the only option available to charitable-minded Israelis who wish to donate stock. Today, thanks to the establishment of a Donor Advised Fund (DAF) called Keshet, one can donate shares of stock directly to the fund, which not only saves taxes but provides more money for the charity to use. Making it easier to donate stock for those who believe in charitable giving.
The following example best illustrates the above in regard to charitable giving and how to donate stock:
Shlomit has 1000 shares of stock that are currently worth $10,000 that she wants to donate to Hadassah Medical Center. Shlomit bought these shares ten years ago for $1,000. Under the old method, Shlomit would have to sell the stock, (she couldn’t just donate the stock), pay a tax of $2,250 on her gain, and then contribute the after-tax proceeds of $7,750 to Hadassah. In the end, Hadassah would end up with $7,750, and Shlomit would receive a tax credit of $2,713 ($7,750 *.35%).
However, if Shlomit would donate the stock directly to Keshet, the stock would be sold tax-free by Keshet, and the entire $10,000 would be transferred to Hadassah. In addition, she would have no tax to pay on the charitable giving, and she would receive a tax credit of $3,500 ($10,000 *.35%). It is truly a “win-win,” Shlomit gets a more significant tax credit, and Hadassah receives a considerably larger donation. This is a better approach for someone who wants to donate stock.
There are several additional benefits to using a DAF. Very often, while (as seen above) there are significant tax advantages if you donate stock, it is very difficult for a founder of a start-up to make a quick decision on a charitable contribution. We are usually speaking about a significant amount of money, and young entrepreneurs generally do not have much experience with charitable giving. If they donate stock or cash to a DAF, only a small portion of the original donation is required to contribute to a charity. The DAF can exist for many years while the entrepreneur has time to decide where they would like to devote the money in the DAF. Another benefit is that the money in the DAF can be invested and grow tax-free over time, allowing the original contribution to the DAF to be even more valuable.
In short, using a DAF in Israel is truly a breakthrough for tax and charitable planning. As I have written above, for anyone with stock that has appreciated and has charitable leanings, they definitely should explore using a DAF with your Israeli and U.S. tax advisor.
The author of this blog is the President & CEO of Philip Stein & Associates.
