Doing Good By Donating Stock

DOING GOOD BY DONATING STOCK

By: Carrie McPherson

Like many investors, you may own shares of stock (or other assets like mutual funds) that have appreciated in value given the generally favorable environment for the markets in recent years. If the stock is held in a taxable account, it means that a decision to sell shares at some point in the future may result in a taxable gain.

One option to consider is gi ing those appreciated shares to quali ed charities. is may provide a tax bene t for you and it could result in a larger gi for the receiving organization as well.

Weighing your options

Donating stock rather than cash makes the most sense if it has been held in a taxable account for longer than a year and it has appreciated in value. It also may be best if you were already considering selling that stock position.

Consider a situation where an individual wants to take a stock valued at $2,000 and use it to fund a donation to a quali ed charity. In this example, we’ll assume the stock was purchased 10 years ago for $1,000 and is now valued at $2,000. e donor can proceed in one of two ways:

Option A

e donor sells the stock, realizing a capital gain of $1,000. Assuming the gain is subject to the top long-term capital gains tax rate at the federal level (20%) the federal income tax on the gain is $200; and could be more when considering any state taxes. at leaves only the a er-tax value of the proceeds from the stock sale (approximately $1,800) available to donate to the charity.

Option B

Instead of selling the stock, the individual arranges to donate the stock to a quali ed charitable organization. In this way, no stock sale occurs while the individual owns it, avoiding the federal capital gains tax. Ownership of the full $2,000 value of the stock transfers to the charity. e organization can sell the stock at any time without any tax consequences given its tax-free status. e donor may be able to claim the full $2,000 value of the stock as a charitable contribution for tax purposes.

The advantages of donating stock

In this example, it is clear that there are several advantages to donating stock directly to the charity rather than liquidating the shares rst and donating the proceeds in cash:

1. A long-term capital gains tax liability is avoided by not having to sell the stock rst. 2. e net value available to donate to charity is larger by directly gi ing stock rather than liquidating it rst and donating the a er-tax cash proceeds.

3. e larger value of the donation means the available tax deduction for the gi is larger as well.

is creates a win-win situation, both for you as the donor as well as the charity. e organization can turn the stock received into cash immediately by selling it or choose to hold onto the stock to capitalize on potential future gains. at means the value of your gi could be enhanced.

is strategy works speci cally for appreciated stock that is held for at least 12 months (qualifying for long-term capital gains treatment). If the stock was held for less than 12 months, tax laws only allow you to deduct the cost-basis value of the stock that was donated. If the stock lost value, it is more advantageous to sell the shares rst and then make the donation to charity. You may be able to utilize the capital loss on your tax return to o set other gains or a portion of your income.

Check out your options

Before you decide to donate stock to charity, check with the organization in advance to make sure they are able to accept such a gi . Also be sure to consult with your tax advisor to have a clear understanding of the tax rami cations of your donation plan.

Carrie A. McPherson, CRPS®, CDFA® is a Financial Advisor and Certified Divorce Financial Analyst with BeaconPoint Wealth Advisors, a financial advisory practice of Ameriprise Financial Services, Inc. in Providence, RI. She specializes in fee based financial planning and asset management strategies and has been in practice for 13 years.

Please contact her at www.ameripriseadvisors.com/ team/beacon-point-wealth-advisors or (401)824-2557.

1 Citizens Plaza Ste 610 Providence, RI 02903.

Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser.

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