Donating Stocks and Other Securities in the U.S.A.

By Eric Brandt

This article explains the benefits of donating stocks.

If you are planning to make a donation to Word & Deed, look through your portfolio before you write a check to see if you own any securities that have appreciated in value.

A charitable contribution of long-term appreciated securities – i.e. stocks, bonds and/or mutual funds that you have held for at least one year – is a tax efficient way of giving.  Capital gains taxes on the securities are avoided when the security is not sold, but rather gifted to Word & Deed.  In addition, you will be eligible to receive an income tax charitable contribution deduction as an itemized deduction for the full fair market value of the security at the time of the gift.  

Your gift of appreciated securities is fully deductible up to 30% of your adjusted gross income.  High-income donors may be subject to a partial phase-out of itemized deductions.  However, any excess can generally be carried forward and deducted over as many as five subsequent years.  

The following example illustrates the potential benefits of these tax rules.

  Sell Stocks and Make Cash Donation from Net Proceeds Donate Stocks Directly to Word & Deed
Purchase Price $10,000 $10,000
Selling Price $50,000 $50,000
Capital Gains (Selling Price Less Purchase Price) $40,000 $40,000
Long-Term Capital Gains (Tax Paid or Avoided*) $6,000 N/A
Amount Donated to Charity (Cash or Value of Stock) $44,000 $50,000
Personal Income Tax Savings** $11,000 $12,500

*15% capital gains rate assumed
**25% tax bracket assumed

You will note that in the example above, donating the stock directly to the charity results in a much higher net benefit to the donor as well as a larger gift to Word & Deed.  The gift to Word & Deed increases by $6,000 since there would be no capital gains and, therefore, no capital gains tax if the stock was gifted as opposed to sold (assuming a 15% capital gains tax rate on $40,000 of capital gains).  In addition, the benefit to the donor increases by $1,500 (a $6,000 higher charitable donation deduction based on an assumed tax 25% tax bracket).

The above hypothetical example is for illustrative purposes only.  Tax rates may be higher or lower than those used in the above hypothetical example. State and local taxes, and the federal alternative minimum-tax are not taken into account. The material presented in this article is intended for information purposes only and does not constitute legal or tax advice. Please consult your tax advisor regarding your specific legal and tax situation.  

Eric Brandt is a member of the Word & Deed board and an attorney with Annis, Visser & Brandt, P.C. in Grand Rapids, Michigan. He, along with his wife, Jean, and daughter, Rebecca, attend the Dutton United Reformed Church.

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