Using Stock for Wise Year-end Giving

The end of the year is often the time people assess their charitable giving for the year.  Some use this time to make sure they have remembered to support their favorite organizations during the year.  Some review any possible commitments they made that need to be fulfilled.  Some use the time to consider likely tax scenarios for the year and try to determine the advantage or even necessity of making charitable gifts before the end of the year.

 A strategy that many wise donors use is giving a donation of an appreciated asset such as stock, instead of cash.

A simple illustration will help you understand why this might be advantageous for your donors to consider.  Let’s say they want to make a charitable donation of $10,000, but they will be forced to  sell stock to raise the cash.  Assume they decide to sell $10,000 worth of stock that was bought a few years ago for $3,000.

To begin with, they will pay a commission on the sale.  Then they will be liable for taxes on the transaction.  If they held the stock for longer than a year and a day, they will pay a long term capital gain tax of 15% on their $7,000 profit. That is $1,050 that will have to be paid.

On other hand, if they just gave $10,000 worth of public stock to a non-profit organization, they would NOT report any income from the appreciation of the stock.  In fact, they get a charitable deduction for the entire amount - $10,000.  Since the charity does not pay tax, it receives the full value of the gift. 

Said another way, they would need to sell $11,765 worth of stock to be able to give $10,000 in cash after paying the required taxes.

This is a strategy that can work with any amount of stock.  In essence there is no minimum or maximum.  Remind your donors to inform you beforehand about the gift of stock so you can  relay transfer instructions to the donor's broker.