Charitable Contributions of
With the rise in stock
prices over the past few years, this may be an ideal time to make special
contributions to your favorite charity. The organizations you contribute
to (whether religious, civic, humanitarian, cultural or academic), can
accomplish more with your financial assistance.
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 your college alma mater. You also have 200 shares of XYZ stock that
is currently worth $10,000 and you paid only $1000. 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 your college.
- If you give the
shares to the college, you get a tax deduction for the full $10,000
(the fair market value), the college gets $10,000 instead of $8,650
and there are no capital gains taxes due. You and the charity win.
There are a few rules
- 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 gifts of appreciated property. This limit is 30% of your adjusted
- 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 your favorite charity and save taxes.