I don’t know about you, but I’m already getting alerts about Giving Tuesday, the day following Black Friday and Cyber Monday that kicks off the charitable season. While it may seem a bit early to discuss a strategy to your giving, I think this article will give you some time to contemplate how you can be charitable and reduce taxes even more than originally thought.
Most people know that they can reduce their taxable income by declaring charitable gifts on Schedule A. (Of course, if you don’t file a Schedule A, then your charitable giving is simply a reflection of your overflowing heart with no income tax benefit.) However, there is one way to give to your favorite cause that is often overlooked, with a potentially greater tax benefit than a Schedule A deduction.
Donating appreciated stock is a wonderful way to give to your favorite charity and not incur any capital gains on the liquidation. This is especially beneficial for stock that has increased dramatically. Also, since you are donating/transferring the stock, you may not incur any transaction fees.
Purchase 100 shares of XYZ stock at $50.00/share, for a cost basis = $5,000
Current value of XYZ is $150/share, for a market value = $15,000
Comparing the 2 strategies
1) Donate Cash
* Sell the stock and receive $15,000
* Donate $15,000 to Awesome Charity
* Pay capital gains tax on ($15,000 – $5,000) = $10,000 x 23.8% = $2,380
(If you’re in the top tax bracket, tax on capital gains = 20% for long term stock (held more than 1 year), plus an additional 3.8% Net Investment Income Tax.)
Net result: Deduct $15,000 on Schedule A, pay $2,380 in capital gains taxes.
2) Donate Stock
* Donate the $15,000 stock to Awesome Charity
* Deduct $15,000 on Schedule A and pay no taxes on it.
Net result: Deduct $15,000 on Schedule A, pay $0 in capital gains taxes
Most charities will accept donations in the form of stock instead of cash. It is not always immediately apparent, but you can often drill down on their donation page, or email them to gather the details of their brokerage account.
Still unclear how this can work for you? Give us a call and we’ll be happy to walk you through your personal situation.