Many people own appreciated stock – stock that has risen in value over time. For example, Jane has a stock account with a well-known brokerage company. One of her stocks has grown from $15 a share to $75 a share over the past few years. If she asked her broker to sell the stock she would owe tax on the $60 of appreciation for each share that was sold.
However, if Jane gave the stock to the Priests of the Sacred Heart, she would avoid the tax on the appreciation and receive, instead, an income tax charitable deduction on the full value of the stock. What's more, because the Priests of the Sacred Heart is a qualified charitable organization, it could sell the stock and avoid any tax on the appreciation. Thus, it’s a win for Jane and a win for the Priests of the Sacred Heart.
Let's say Jane decided to give 100 shares of this stock as a year-end gift to her charity. In making the gift, she would obtain a charitable income tax deduction of $7,500.00, even though she only paid $1,500 for these shares originally. If she happens to be in the 30 percent tax bracket and claims the deduction on her itemized tax return, she could possibly save $3,450.00 in taxes -- more than she paid for the stock in the first place!
Historically, year-end is a popular time for making stock gifts. In fact, most stock gifts occur during the fourth quarter of the year. Many thoughtful donors review their stock portfolio and select those stocks which have appreciated the most and which have been held for more than a year. These donors give stock instead of cash because they have discovered the value and enjoyment of stretching their giving power by giving the appreciation. And, after all, the more they can prudently give to help the worthy efforts of their charity, the better they feel.
Stock can also be given to fund a Charitable Gift Annuity. Normally, an annuity payment is comprised of ordinary income and tax-free income. If the gift annuity is funded with tangible personal property, appreciated stock or mutual fund, the annuity payment is comprised of ordinary, tax free and capital gain income.
Donating stock to fund a gift annuity provides a number of tax advantages. First, donors are eligible to claim a charitable deduction in the year they make the stock gift. In addition, they are able to reduce and bypass some of the capital gain tax liability they would incur if they sold the stock and donated the proceeds.
In essence, the capital gain income is spread over the life expectancy of the donor or donors. Most people prefer this to the alternative of selling the appreciated asset, paying capital gain tax, and then having less money to reinvest. In many cases our donors have increased their annual income in comparison to dividend income they normally receive from the appreciated stock.
Have you considered making a gift of appreciated stock to a charity? It may be better for you than making a gift of cash. To learn more about this, you may want to talk with your CPA and investment advisor.
If you would like further information on giving a gift at year-end, please contact Pam at 1-866-268-1057 or send her an email at email@example.com