Some Useful Tips for Giving Stock

Some Useful tips for Giving Stock

Hopefully, you have already realized the financial benefits of making your charitable donations by giving stock or mutual funds and have begun using that strategy. 

Here is a quick synopsis of why it makes sense for you.  Let’s say you want to make a gift to a favored charity.  Furthermore, let’s say you have $10,000 of stock you are willing to use to make this gift.  Suppose your cost basis for the security is $4000 (40%) of its current market price.  Selling that stock would create a capital gain of $6,000 (60%) of the sale.  If this sale subjects you to a 30% tax, and you held the money you would have to pay in capital gains taxes ($1,800), you would only be able to give $8,200.

Obviously, you get an $8,200 charitable deduction.  That is wonderful.  However, with this example you would be liable for $1800 for the sale of the stock. 

On the other hand, let’s say you simply gave stock the stock.  If you just gave the stock you otherwise would have had to sell, you would get a charitable deduction of $10,000, PLUS – you completely avoid any capital gains taxation since you did not sell that stock.  So, in this example, you would save about $1800 by giving stock, in addition to knowing you made a larger gift than you thought you would be able to do.

In this example, you would also save income tax on the additional $1,800 value of your gift.  This would be an additional $540 if your tax bracket is 30%.

What stock or mutual fund should you give?  Here are some things to consider:

  1.  It should be a stock or gift that is in a taxable account.  You would lose this advantage by giving stock from an IRA or any tax-deferred account, for example.

  2. It should be a security that has had a nice appreciation.  The greater the percent of appreciation the greater is your tax savings.

  3. You should have held the security over one year at the time of the gift.  This means your holding period is now ‘long-term’.  You can only use securities that have been held ‘long-term’ for this transaction.

  4. You may need advice from your financial adviser or broker here, but it is usually preferred to give securities that currently have less likelihood of appreciation.

One final strategy you may want to consider.  Many people like the idea of keeping as much of their money as possible working for them.  Even though you have used a long-held stock to make your desired donation, you can replace the value of the gift with cash back into your stock account.  This allows you to keep your portfolio at the same level - you simply saved on future taxes by giving an appreciated asset instead of the actual cash.