Charitable giving can take many forms. Whether you gift on an annual basis or you are planning to make a one-time gift, make sure you are maximizing the tax benefits associated with your gift. One way to do this is to compare gifting cash versus stock.
Most people donate to charity in the form of cash. This can be a huge mistake, especially if they hold securities with unrealized long-term gains. Donating appreciated stock is a cashless transaction that yields additional tax benefits to the donor. First, the donor receives an itemized deduction equal to the fair market value (FMV) of the stock. FMV is calculated as the high-low average of the stock price on the day contributed. This deduction is limited to 30% of the donor’s adjusted gross income (AGI) for gifts to public charities. Any amount over the 30% AGI limitation can be carried forward for a maximum of five years. Second, the donor does not have to realize the gain on appreciation of the securities. That is a savings of up to 20% in capital gains tax and another 3.8% in net investment income tax. Remember, this is for stock with a long-term holding period. Below is a side-by-side comparison showing the benefits of donating appreciated stock.
|Donate Cash||Sell Stock to Donate Cash||Donate Stock|
|Adjusted Gross Income (AGI)||$750,000||$750,000||$750,000|
|Fair Market Value (FMV) of Gift1||$25,000||$25,000||$25,000|
|Capital Gains Tax||$0||$3,5703||$0|
Stifel does not provide legal or tax advice. You should discuss your particular situation with your professional legal and tax advisors.