Are you thinking of making a large year-end gift to a favorite charity? Do you own stocks that have increased in value? If you answer yes to both of these, then consider donating the stock instead of writing a check. Donating stock versus giving cash to a charity can save you a bundle on taxes. This works especially well if you already have plans to sell that stock to rebalance your portfolio. If you’ve held the stock for at least a year, you get an itemized deduction for the current value of the stock. And you don’t pay capital gains tax on the increase in value. Most charities sell donated stock soon after they get it, so they get the full value of your donation.
For example, Leslie wants to give $20,000 to a local food bank and is in the highest tax bracket. She has stock she bought several years ago for $5,000 which is now worth $20,000. If she transfers that stock to the food bank instead of selling it, she saves $3,000 in capital gains tax. She also escapes the 3.8% Medicare tax on that gain – another $570. Then she saves another $7,920 by deducting the $20,000 value of the donated stocks on her tax return. By donating the stock, she saves a total of $11,490. If she just writes a check to the food bank for $20,000, she’ll only save $7,920 in tax by deducting the donation to the food bank. Please contact our office if this sounds like a useful strategy for your year-end giving.