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Maximizing your charitable deductions with appreciated stock

 

By Christopher N. Schneider, Attorney at Law - Dorband & Schneider, LLP

Since many of our clients give regularly to charity, wed like to ensure that you were aware of the substantial tax benefit of donating appreciated stock directly to a charitable organization.  Donating appreciated stock directly yields a greater current tax year benefit and results in larger tax savings. 

To better illustrate, consider the following scenario:

You have decided that you want to give $1,000 to your favorite charity. This can be accomplished by simply writing a check to the charity or donating appreciated property. Let's look at the scenarios below to see how donating appreciated property is a win for the charity and a win for you.

Maximizing your charitable deductions with appreciated stockThe first option is to donate by writing the charity a check. If you give $1,000 to the charity, they will receive $1,000 and you will receive a tax deduction for the same amount. Assuming that you are in the 28% federal tax bracket, the value of your deduction would be $280 ($1,000 x 28%).

The second and better option is to donate appreciated stock. Let's say you have $1,000 worth of Chevron stock that you originally paid $500 for years ago. If you were to sell that stock you would have a federal capital gain of $500 resulting in a $75 tax bill ($500 x 15%). Instead of selling the stock you donate it directly to the charity. The charity receives the stock and immediately sells it to realize the full $1,000 value. You receive the same $1,000 tax deduction illustrated above, but because you donated the stock and never sold it, you never realize any capital gain. Remember that $75 you were going to owe in capital gains tax, it's gone.

You might be thinking that you do not want to get rid of your Chevron stock because you like having it in your portfolio. The answer for you is simple: buy new stock on the open market with the cash you were going to give to the charity. You were already going to send a $1,000 check to the charity but instead you donated the stock. Now you can use that $1,000 check and buy $1,000 worth of Chevron stock. The beauty of this transaction is that instead of having a $500 basis in the stock, you now have a $1,000 basis. So even if you keep the stock in your portfolio you still eliminate $75 in capital gains tax by taking a little extra time to structure the transaction correctly.

There are certain charities that are not equipped to take donations in this manner. It also doesn't typically make sense to take the time for small donations. The larger the donation, the larger the potential tax savings.

Although the direct donation of stock is generally more advantageous to both you and the receiving charity, there are variables that can place limitations on charitable giving such as your adjusted gross income and the type of gift being donated.  We have also not included an analysis of state tax implications. For these reasons, you should always discuss the implications with a CPA, Attorney or qualified tax preparer if you are unsure about the impact for you personally.


Dorband & Schneider, LLP
3182 Old Tunnel Road, Suite C, Lafayette, CA 94549
925.938.1200 (Tel)
925.938.1218 (Fax)
E-mail: [email protected]

 

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