If you are accustomed to writing a check whenever you donate to charity, don’t forget that many organizations would be just as happy to receive shares of stock. When you donate appreciated securities to a qualified charity, capital gains taxes are avoided.
You may receive a charitable deduction for the full market value of the securities at the time of the donation, even though your cost basis may be much lower. Because you are not selling the securities, you are not liable for capital gains taxes. And because the receiving organization is tax-exempt, it may sell the securities without owing any tax.
You may receive a charitable deduction for the full market value of the securities at the time of the donation, even though your cost basis may be much lower. Because you are not selling the securities, you are not liable for capital gains taxes. And because the receiving organization is tax-exempt, it may sell the securities without owing any tax.Here’s how it might work. Let’s say you inherited 1,000 shares of Occidental Petroleum in 1980 when the stock was trading at a split-adjusted price of $12 per share. That makes your cost basis in the stock $12,000. Let’s say that today the stock is trading at $50, making your shares worth a total of $50,000. If you were to sell the stock and give the proceeds to charity, you would have to report a long-term capital gain of $38,000. This would be taxable at long-term capital gains rates, currently 15% at the federal level, plus the current rate for your state. When you file your tax return you would owe $5,700 in federal capital gains tax ($38,000 x .15) plus any applicable state taxes. Subtracting the capital gains taxes of $5,700 from the sales proceeds of $50,000, you would write a check to your favorite charity in the amount of $44,300. Your tax deduction would be $44,300, saving you $15,505 in taxes at the 35% tax bracket.
Compare the two strategies: (Note that this is an example only; actual results will vary. Please consult your tax advisor for guidance pertaining to your own situation.)
| Sell stock, give cash | Give appreciated stock | Difference | |
| Charity receives | $44,300 | $50,000 | $5,700 |
| Tax savings for you (35% tax bracket) | $15,505 | $17,500 | $1,995 |
For illustration purposes only. Actual results will vary. Consult with your tax advisor for guidance.
Now let’s see what happens if you donate the stock to charity. If you transfer your 1,000 shares of Occidental Petroleum to your favorite charity (or divide it among several organizations), the value of the gift would be the full $50,000. Your tax deduction would be $50,000, saving you $17,500 in taxes at the 35% tax bracket.
The importance of planned giving
Many of us donate to charity as the spirit moves us. If we learn about a cause that stirs our passions, we might write a check on the spot. If a different cause moves us next year, we might shift our focus — and our charitable dollars — to that one. If our tax advisor tells us in December that we could use more tax deductions, we might scramble around for a worthy charity to donate to.
Charitable giving is always a good thing, of course, but planned giving is even better. With planned giving you identify one or a handful of charities whose cause truly resonates with you. Then you plan a multi-year support program that calls for annual giving and perhaps even an endowment after you’re gone. The charity benefits from knowing it can count on your support, and it may even be able to step up and commit to worthwhile programs that otherwise might be too risky to take on were it not for your steady stream of contributions.
And a planned giving program saves you from making those agonizing decisions when you are approached by one worthy charity after another. You will have already done your research, decided which charities are most worthy of your support, and made the commitment to support them over time. This doesn’t mean you can’t still make impulsive donations as the spirit moves you, but your planned giving program would be your primary focus and the main beneficiary of your charitable funds.
For more information on planned giving, check with your favorite charity or visit the National Committee on Planned Giving (www.ncpg.org) and the Leave a Legacy® (www.leavealegacy.org) Web sites. If you are looking for worthy charities to donate to, go to Charity Navigator (www.charitynavigator.org) and browse the charities by category: animals, arts, education, environment, health, human services, international, public benefit, and religion. Learn how Charity Navigator researches and rates charities based on organizational efficiency (how well it uses funds) and organizational capacity (how likely it will be able to sustain its programs and services over time). See how your favorite charities rank and find out which charities are given Charity Navigator’s highest rankings. Learn more about the charities that interest you and make a commitment to be more methodical in your philanthropy going forward.
Bambi Holzer, president of Bambi Holzer Financial Group, is the author of four books on personal finance. She is a Certified Specialist in Planned Giving (CSPG), a Certified Estate Advisor (CEA), an Accredited Investment Fiduciary (AIF) and a Registered Representative with Brookstreet Securities Corporation, member NASD, SIPC. She can be reached at 877-905-3100. This document is for informational purposes only and should not be regarded as a recommendation, an offer to sell, or a solicitation of an offer to buy any securities. Specific recommendations are made only based on review of a client’s individual investment portfolio upon request. This document is the opinion of the authors and does not reflect the opinions of Brookstreet Securities Corporation. Past performance is not a guarantee of future results. Investing in narrow economic sectors involves its own characteristic set of risks including, but not limited to, the risk of loss due to the inherent lack of diversification associated with concentration of assets in a specific, sometimes, emerging field.
