One way to boost your charitable contributions is to give shares of appreciated stock instead of cash. You deduct the shares’ fair market value and avoid income tax on the capital gain. The charity then sells the shares and has money to use in their efforts. Most brokerage firms and charities are equipped to handle this conveniently.
Here is an example of how this would work. Let us assume you want to make a $10,000 contribution to International Aid. You also have 200 shares of XYZ stock that is currently worth $10,000 and you paid only $1,000. The stock went from $5 to $50.
- If you sell the stock, you will pay $1,350 in tax ($9,000 gain times a 15% long-term capital gains tax rate), leaving you $8,650 to contribute to International Aid.
- If you give the shares to International Aid, you get a tax deduction for the full $10,000 (the fair market value), International Aid gets $10,000 instead of $8,650 and there are no capital gains taxes due.
You and International Aid Wins!
There are a few rules to remember:
- You must have owned the stock for more than a year. Otherwise, you only get to deduct the basis, not the current fair market value.
- The value of the contribution is the average of the high and low prices for publicly held stock on the day of transfer.
- There are some limits on the deductibility of gifts of appreciated property. This limit is 30% of your adjusted gross income. Amounts that you can’t use in the current year can be carried forward to be used in future years.
- This strategy can be used for other forms of appreciated property, but you should consult with your tax advisor.
There can be some tax consequences, so it makes sense to consult your tax advisor. Consider this approach to help International Aid and save taxes.
For more information about this giving option or other giving options, please contact:
Bill Erickson, Director of Advancement at 616.935.6868 or
Andrew Orr, Director of Advancement at 616.935.6870