Buy Low, Give High

When you have benefitted from a rising stock market, a gift of stock rather than cash to a favorite charity is a tax-saving strategy worth considering. With all the changes to the tax laws, Congress left untouched one of the most significant tax benefits for charitable giving. By making a gift using appreciated securities – stocks, bonds, and mutual funds – you can completely avoid capital gains taxes and take an income tax charitable deduction for the fair market value of the shares given to charity.  It’s important to follow the IRS rules to benefit from these generous tax savings. 

First, you must have owned the stock, bond, or mutual fund that has appreciated in valuy for more than one year before the contribution. IRS requires you to transfer the shares to the charity – don’t sell the shares. You avoid paying tax on the capital gain when you give the shares to charity. The charity, in turn, will sell the shares and no taxes will be due on the gain as public charities are tax-exempt. You can take an income tax charitable deduction for the fair market value of the shares transferred, up to 30% of your adjusted gross income, which will save you even more in taxes if you itemize your deductions. You can carry forward any unused deduction for an additional five years. 

The chart below shows how making a gift of appreciated stock can save substantially more taxes than making the same size gift with cash. Your tax savings will be determined by your tax bracket and capital gain tax rate. The example assumes you itemize your deductions.  
 

Perhaps you are reluctant to part with your shares of stock, anticipating the shares will continue to go up in value. Consider giving the shares you own to charity and purchasing shares of the same stock using cash, which will serve to give you a higher cost basis should you sell the shares in the future. 

When considering a gift of this type you should always consult your financial and tax advisors. The IRS has provided tax incentives to encourage the philanthropically inclined to make generous gifts to charity. By taking advantage of the tax laws you will likely find that you can make a generous gift, support a charity whose mission is of importance to you, and reduce your tax bill all at the same time. That is how philanthropy and charities thrive.