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TAX TALK: Get More Bang for the Buck by Donating Appreciated Stock Instead of Cash

Hal Zemel, CPA, J.D., LL.M. 10.10.2016 | TAX TALK

When planning your charitable giving, you should consider donating long-term appreciated stock instead of cash. Donating stock provides two advantages over cash donations.

Additional Tax Savings

Appreciated publicly traded stock you’ve held for more than one year is long-term capital gains property. If you donate it to a qualified charity, you can enjoy two benefits:

  1. You can claim a charitable deduction equal to the stock’s fair market value (not the amount that you paid for it), and
  2. You can avoid the capital gains tax you’d pay if you sold the stock.

This will be especially beneficial to taxpayers facing the 3.8% net investment income tax (NIIT) and the top 20% long-term capital gains rate this year.

For example, if you donate $10,000 of stock that you paid $3,000 for, your ordinary-income tax rate is 39.6% and your long-term capital gains rate is 20%. If you sold the stock, you’d pay $1,400 in tax on the $7,000 gain. If you were also subject to the 3.8% NIIT, you’d pay another $266 in NIIT.

Instead, by donating the stock to charity, you save $5,626 in federal tax ($1,666 in capital gains tax and NIIT plus $3,960 from the $10,000 income tax deduction). If you donated $10,000 in cash, your federal tax savings would be only $3,960. In addition, you may also save state taxes on the gain that you do not have to report.

Limitations

Beware that donations of long-term capital gains property are subject to tighter deduction limits — 30% of your adjusted gross income for gifts to public charities, 20% for gifts to nonoperating private foundations (compared to 50% and 30%, respectively, for cash donations).

And don’t donate stock that’s worth less than your basis, since you will not be able to deduct the loss. Instead, sell the stock so you can deduct the loss and then donate the cash proceeds to charity.

If you own appreciated stock that you’d like to sell, but you’re concerned about the tax hit, donating it to charity might be right for you. For more details on this and other strategies to achieve your charitable giving and tax-saving goals, contact me at HZemel@BerdonLLP.com or your Berdon advisor.

Hal Zemel, a Tax Principal at Berdon LLP, New York Accountants, has more than 20 years in public accounting and advises businesses in the real estate, service, and manufacturing sectors.

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