With U.S. equity valuations near historically high levels, now might be an opportune time to take advantage of the tax benefits of donating long-term appreciated stock to a qualified charity. Directly donating a winning stock you’ve held for at least one year provides greater tax benefits than writing a check to your favorite cause.
Higher deduction. Your charitable gift deduction will be equal to the market value of the stock on the date of your donation, rather than what you originally paid for it.
No capital gains tax. You avoid paying capital gains tax on the unrealized gains of the stock, because it is transferred directly to the charity rather than sold. That also means the charity gets a bigger gift.
Example: Gary Givesalot bought 50 I.M.Great shares two years ago at $100.00 a share. Its shares have appreciated since then to $150.00 a share, giving him a long-term capital gain of $2,500 if he were to sell today. Instead, Greg avoids the capital gains tax by donating the shares to the Red Cross and he deducts the full market value of $7,500 as an itemized deduction on his tax return.
Some tips to keep in mind:
- To maximize your charitable donations, donate only long-term appreciated stock (stock you’ve held for one year or longer). That way, you can deduct the full market value of the stock, rather than its cost basis (what you originally paid for it).
- If it’s a losing stock, it’s usually better to sell it instead of donating directly. That’s because selling a losing stock will allow you to take a capital loss deduction on your return. Certain limits apply.
If you’d like to discuss additional opportunities to lower your taxes next year, we’re just a phone call away. You can reach us at (360) 671-0700, or send us an email using the form below.