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You’re considering an outright gift made during your lifetime > You’re holding stocks that have risen in value > You want to maximize your deduction but not affect your cash flow
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To preserve wildlife,
to support literacy... whatever is important
to you, ensure the continued work of a cause
that is close to your heart. |
The IRS still offers you a notable tax break if
you are considering a charitable gift. You may deduct
the full, fair market value of appreciated securities
which you donate, and also avoid capital gains liability
on the transfer, so long as you have owned the securities
for more than one year. This means that you can
leverage a larger donation if you use an appreciated
security to make your gift instead of cash.
The most common
appreciated assets, and the easiest to donate,
are marketable stocks and bonds. Here are some
details about these gifts:
- How
will your gift of stock be valued? It is
the average of the high and low prices for the
stock on the day you transfer it to us. If the
high bid was $75 and the low was $72 on the
day you made your gift, your deduction will
be $73.50 per share.
- Do
not sell the stock first. Even though you
donate the proceeds as a gift, the IRS will
impose capital gains tax on your sale, wiping
out the benefits of this arrangement.
- When
is your gift complete? If your stock is
held by your broker, it is the date the shares
reach the charity's account. If you hold the
stock yourself and mail it to the charity, it
is the postmark date on the envelope. The development
office of the charity can help you with these
details.
- How
should you transfer securities? If your
broker holds the shares, he or she should call
the development office of the charity for transfer
instructions. If you hold the shares yourself,
mail them (unendorsed) and, in a separate
envelope, one stock power signed in blank for
each certificate given, to the address provided
you by the charity.
- Can
you deduct the full amount of your gift?
Yes, within this limitation: the IRS says that
you can deduct gifts of appreciated assets up
to 30 percent of your adjusted gross income
(the total of your taxable income). Thus, if
your adjusted gross income will be $100,000
this year, you will be able to deduct up to
$30,000 in gifts of stock. A gift in excess
of the 30 percent amount is not wasted, however,
because the IRS allows you to carry forward
excess deductions through the five tax years
following the year of your gift.
Note that the IRS allows donors of cash gifts
to deduct them up to 50 percent of their adjusted
gross income. Therefore, the deduction for a
large gift of appreciated assets could take
longer to claim than the deduction for the same
gift made in cash. However, if the donated assets
had a small cost basis, they could still be
more tax-efficient to use than cash.
- What
if your stock has declined in value? The fair-market
deduction rule works against you, then. If you
bought the stock for $50,000 and it’s now
worth $30,000, your charitable deduction will
be limited to $30,000. You won’t earn a
capital loss by making the transfer to us, either.
It is better planning to sell depreciated stock,
claim the resulting tax loss as one deduction,
then make a deductible cash gift to the charity
with the proceeds.
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Example:
You
review your portfolio, and find a block
of XYZ stock with a fair market value of
$100,000 that you purchased for $30,000.
If you contribute that stock to your favourite
charity you will claim a charitable income
tax deduction for the full $100,000. In
addition, you will not be liable for tax
on the $70,000 capital gains upon transfer
of the stock.
By
donating appreciated stock instead of cash,
you have delivered $100,000 to us and secured
a tax deduction in the same amount, at a
cost to you of only $30,000.
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