Why sell shares of stock when you can gift them? If you have appreciated stocks in your portfolio, you might want to consider donating those shares to charity rather than selling them.
Why, exactly? Donating appreciated securities to a tax-exempt charity may allow you to manage your taxes and benefit the charity. If you have held the stock for more than a year, you may be able to deduct from your taxes the fair market value of the stock in the year that you donate. If the charity is tax-exempt, it may not face capital gains tax on the stock if it sells it in the future.
When is donating stock a better choice than gifting cash or just selling the shares? There are several reasons to consider donating highly appreciated stock to a tax-exempt charity. For example, you may own company stock and have the opportunity to donate shares. There also are potential tax benefits to consider if you donate appreciated securities that you have owned for at least one year.
If you sell shares of appreciated stock from a taxable account and subsequently donate the proceeds from the sale to charity, you may face capital gains tax on any potential gain you realize, which effectively trims the tax benefit of cash donation.
When is donating cash a choice to consider? If you provide the charity with a cash gift, there may be some limitations. Cash gifts are deductible up to 50% of adjusted gross income. As an example, if a donor in the top 37% federal tax bracket gives a 501(c)(3) non-profit organization a gift of $5,000, the net cost can work out to just $3,150 with $1,850 realized in tax savings. A donor may also need to consider possible implications of state taxes in addition to federal.
If you donate shares of depreciated stock from a taxable account to a charity, you can only deduct their current value, not the value they had when you originally bought them.
Remember the tax rules for charitable donations. If you donate appreciated stock to a charity, you may want to review I.R.S. Publication 526, Charitable Contributions. Double-check to see that the charity has non-profit status under federal tax law, and be sure to record the deduction on a Schedule A that you attach to your 1040.
Gifting cash or securities to an organization is a wonderful opportunity. But keep in mind that tax rules are constantly being adjusted, and there’s a possibility that the current rules may change. Make certain to consult your tax, legal, and accounting professionals before starting a new gifting strategy if you intend to use the gift as a tax deduction or visit www.IRS.gov.
This article is for informational purposes only. It’s not a replacement for real-life advice. Make sure to consult your tax and accounting professionals before modifying your gift-giving strategy.