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Donating Appreciated Stock Tax Benefits

Must File Special Irs Form

Donation of Appreciated Stock to Charity

With your tax return, you need to report the stock donation on IRS Form 8283, used for your noncash charitable contribution. The instructions for the form and IRS Publication 561 explain the rules that apply when you must obtain and include a written appraisal. For example, with private-company stock valued at $10,000 or less, a qualified appraisal is not needed , but the charity needs to explain how it determined the valuation. For a donation of publicly traded stock, you do not need an appraisal.

Why You Should Be Thinking About Charitable Giving Now

When the stock market strays into bear territory, as it has done this year, high-net-worth investors may be tempted to curtail their charitable giving as a means of preserving wealth. In this scenario, gifts of appreciated stock in particular may seem risky in a downturn.

Thats an understandable reaction, but it may not serve the donors strategic interests for two main reasons.

Philanthropy is an investment in family and legacy as well as community

For some wealthy families, charitable giving is an expression of shared values. In this context, philanthropy can provide the basis for far-reaching and inclusive discussions around the familys legacy and long-term aspirations, in turn giving voice and agency to younger, less assertive, or geographically distant family members. This can be especially crucial where the family isnt tied to an operating business, or where relatively few members of the family are directly involved with one. Without a shared and central mission such as philanthropy, many families in this boat find theres little left to connect its members but money.

Downturns dont last forever

Bear markets, often signified by drops from near-term highs of 20% or more, are sustained periods of downward trending equity prices, according to Investopedia. This year, the S& P 500, a proxy for US large caps, slipped into bear country after the Federal Reserve, reacting to signs of sustained inflation, raised interest rates significantly and on multiple occasions.

Company Stock Can Help Bunch Donations

The advice from many experts is to bunch donations so that your itemized deductions go beyond the standard deduction amounts under the Tax Cuts & Jobs Act. For 2021, that standard deduction is inflation-adjusted to $25,100 for joint filers and $12,550 for single filers. If you do not routinely exceed the standard deduction, you can get over it by bunching in a given year donations of stock to charities or a donor-advised fund.

Alert: The CARES Act, adopted in response to the Covid-19 pandemic and related economic crisis, does have provisions on charitable contributions, but they do not involve stock donations. Taxpayers who use the standard deductions instead of itemizing deductions can claim up to a $300 deduction for a cash donation to a charity directly off adjusted gross income . For the 2020 tax year, the legislation also increases the deduction percentage limitation for cash charitable contributions from 60% to 100% of adjusted gross income.

Update for 2021: This cash donation amount continues and increases to $600 for joint filers. See Line 12b of the IRS draft 2021 Form 1040. The deduction percentage increase for AGI also continues.

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Eliminate Capital Gains Taxes

Contributing long-term appreciated assets to a qualified charity can be a highly effective tax strategy for eliminating capital gains taxes, especially for people with investments that have increased significantly in value.

Consider a hypothetical example. Suppose you purchased $20,000 worth of stock in a company 20 years ago. Today those shares are worth $50,000, meaning a $30,000 taxable long-term capital gain. The chart compares donating the stock directly to charity versus selling the security and donating the proceeds to charity. The bottom line: By donating the stock, you eliminate a $7,140 long-term capital gain and Medicare surtax on the $30,000 increase in the stock’s value.

The more your security has appreciated and the higher your long-term capital gains tax rate, the more beneficial this strategy becomes. But you could still use this strategy to eliminate a substantial amount of tax, even if your adjusted gross income puts you at the 15% tax rate for long-term capital gains.

Give Yourself The Gift Of Lower Taxes

Donate appreciated stock for twice the tax benefits

There are two ways to reduce your tax costs through securities donations:

Gift your star performers. Maximize your savings on capital gains taxes by donating your strongest performing stocks. They may be your favorite holdings, but this is not goodbye replenish your portfolio by purchasing the same security . Because the stock has appreciated since your original purchase, your new cost basis will be higher, which creates the potential to harvest tax losses to offset gains in future years.

Rebalance for a cause. When your portfolio has drifted from its target allocation, its time for rebalancing, which is a great time to think about your favorite charities. As you trim outsized exposures, consider donating your lower cost-basis long-term holdings as this will reduce the tax impact of rebalancing.

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Donate Appreciated Stock For Twice The Tax Benefits

Nov 26, 2018 | Individuals

A tried-and-true year-end tax strategy is to make charitable donations. As long as you itemize and your gift qualifies, you can claim a charitable deduction. But did you know that you can enjoy an additional tax benefit if you donate long-term appreciated stock instead of cash?

Donating Appreciated Stock Can Double Tax Benefits

With the market, as measured by the S& P 500 index, up about 12 percent so far this year, investors are finding they may have big gains in some stocks. Apple is up over 48 percent this year. If you are planning to make a substantial donation to a qualified charitable organization, church, synagogue, or other non-profit organization, then consider using appreciated shares of stocks or mutual funds instead of cash.

A donation to a qualified charitable organization may be deducted on your federal income tax return as an itemized deduction. The tax planning benefits of donating appreciated shares of stock or a fund include deducting the amount of the charitable donation AND avoiding the unrealized gains on the appreciated shares. This is because of the general rule that the deduction for property donated to charity is equal to the fair market value of the donated property. Where the donated property is “capital gain” property, the donor does not recognize the gain on the donated property. These rules create a “double play” of tax benefits: A charitable deduction AND avoiding tax on the unrealized capital gains of the donated property.

So as you can see, your tax benefits from making a donation of appreciated stock versus giving cash can be substantial. And the organization will be just as happy to receive the stock versus cash.

So remember that if you are considering the donation of appreciated stock, make sure that the shares have been held for more than one year.

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Ordinary Income Property And Short

Ordinary income property normally includes assets such as inventory held for sale by a business, artwork created by the donor, or manufactured items you produced. In addition, any short-term capital assets, such as investments like stock, held for less than a year are also considered to be ordinary income property.

If the assets you are donating would have generated ordinary income if it was sold on the day of the donation, then the IRS limits how much you can deduct to the fair market value fair market value reduced by the amount of ordinary income or short-term capital gain that would have been realized. Or to put it another way, your deduction will generally be limited to the cost basis of the asset.

There are some notable exemptions to this rule. You may be able to take the full deduction for the FMV of the property if you include the appreciated value of the asset in your gross income on your tax return. Also, if the property you want to donate has decreased in value, your deduction could be further limited .

Who Should Donate Stock

Charitable Giving That Gives Back: Appreciated Stocks & Charitable Trusts

Anyone with stock that has appreciated in value that theyve held longer than one year should consider stock donations. The tax benefits, however, depend on your annual income.

The higher your income, the greater the tax benefit, says Elsensohn. But earning a moderate income shouldnt necessarily deter you from donating stock.

The reality is this is not just for the super wealthy, Elsensohn says. The tax savings might not be as great if you have $100,000 to $200,000 in income, compared to high-net-worth individuals, but anyone who is actually paying taxes can benefit from this strategy.

David Levi, CPA, Senior Managing Director at CBIZ MHM, a national accounting, tax and advisory services organization, says that he frequently sees retirees donating stock take advantage of tax benefits and keep cash on hand.

They may have larger portfolios and less incomecash is precious for them, so theyre willing to give away some of their wealth so it doesnt impact their lifestyle, Levi says.

If you dont fall into any of those categories? Levi says a good rule of thumb is to donate at least $1,000 in stock for it to be worth the lengthy processing and administrative hoops the broker will have to go through.

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Overview Of Tax Benefits

A gift of appreciated securities held for more than one year may provide significant benefits to you as a contributor, such as:

  • Entitling you to a charitable income tax deduction for the fair market value of the gifted securities as of the date of gift.
  • Eliminating capital gains tax that would ordinarily become due if you had sold the appreciated securities on the open market and donated the proceeds from the sale to charity
  • Claiming your charitable deduction against up to 30% of your adjusted gross income. Any unused deductions can be carried forward over the next five years.
  • Providing a way to help you to achieve your long-term financial objective of reducing your income and estate taxes.

If you have securities that have declined in value over the years and are interested in donating them to charity, you may find it more advantageous to sell the securities first and contribute the proceeds to charity as opposed to donating the securities outright. This strategy should allow you to claim a deduction for both the loss from the sale of the securities as well as the charitable gift.

If you are considering donating stock that is subject to a cash merger or tender offer, it’s important for you to note that you will be subject to tax on the capital gain even though the shares were transferred to us before the tender offer became effective.

You should always consult with your financial advisor before initiating a charitable gift arrangement.

Bunching Your Charitable Donations

One strategy to consider is bunching your charitable donations. This would involve doubling your charitable donations in one tax year and claiming the standard deduction in the alternate year. As charitable donations are considered itemized deductions, the doubling of charitable donations would be beneficial from a tax standpoint, so long as the charitable donations push you over the increased standard deduction thresholds.

Other itemized deductions include, but are not limited to, home mortgage interest deductions, as well as state income and real estate taxes. You can use this strategy whether or not you utilize a DAF. However, a DAF can be a powerful tool to help facilitate a bunching giving strategy to help reduce income taxes by preplanning multiple years of donations into one, especially in high income years. If you fund the DAF in the current tax year, you can make grant requests out of the DAF for the following year if you intend to utilize the increased standard deduction the next year.

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Want To Optimize Your Charitable Giving

Charitable giving can be one of the most fulfilling parts of having wealth. Through your own financial wellness, you can make a positive impact on the causes you care about most in this world. Still, you dont just want to give blindly. When structuring your donations, theres a number of challenges you may encounter tax pitfalls, deduction limits, liquidation issues which is why its important to stay well-informed about contribution rules and requirements.

To maximize the benefit for both yourself and for the recipient of your donation, youll need a strategy, personalized to your own financial needs and objectives. This is where Private Wealth Design comes into play. By helping you design a customized plan for growing your wealth over time, our team at Monument can help you consider all available charitable giving options, providing a clearer understanding of why its worthwhile to choose one over another.

Its time to find clarity around your finances and remove the anxiety of the unknown.

Read our case study, High Earners Eye Retirement, to see how we helped one of our clients with their wealth planning.


A copy of MCMs current written disclosure Brochure discussing our advisory services and fees is available for review upon request or atwww.monumentwealthmanagement.com/disclosures.

Dont Leave Money On The Table

Donating Appreciated Securities

Donating to charity feels good. So does the tax deduction. Its not surprising that nearly 75% of high-income taxpayers donate cash to charity. But fewer than 10% donate marketable securities.1 This is surprising given the tax advantages of donating long-term appreciated securities versus cash.

When you donate appreciated securities to a qualified charity, the fair market value is deducted from your taxable income and neither you nor the charity will be taxed on the capital gain. Therefore, you can make a bigger impact with your charitable donation by gifting your stocks rather liquidating them and gifting the cash that remains after youve paid up to 23.8% in federal capital gains tax.3

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Stock Held By A Broker

1. Give your broker the following information to transfer a gift of stock to the SPLC:

  • The SPLCs brokerage account is with Stifel, Nicolaus & Co, Inc.
  • The SPLCs account number is 22024754 and the DTC number is 0793.

2. Either you or your broker must contact us online or call 1-888-414-7752 with the name of the stock and the number of shares being transferred. This ensures the gift is properly credited and acknowledged.

Seek Professional Advice Before Gifting Appreciated Stock

As straightforward as this may seem, its always prudent to secure expert help with matters touching on taxes and charities, especially when they may affect your financial and estate planning.

Your financial advisor can help you:

  • Ascertain whether a given charity is qualified
  • Choose the best stocks to donate in terms of portfolio optimization and maximum tax savings
  • Stay up to date on regulatory changes that can impact the tax treatment of donations from year to year

And its useful to know that charitable giving isnt a year-end activity, not with appreciated stocks in play. While its fine to make charitable gifts of cash while the dust is settling, it makes more sense to donate appreciated stock more opportunistically at any time of the year in order to maximize both the size of the gift and the amount you can deduct from your tax bill.

If you want to speak with us about your charitable gifting strategy, please contact us here.

Please read important disclosures here.

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Tax Benefits Of Donating Stock

Donating stock saves you big for one simple reason: capital gains tax.

Lets say you bought 20 shares of AAPL stock in September 2018 ago for $3,010. In December 2019, those same shares are worth $5,870. That represents a gain for you of $2,860. Thats fantastic! You might be thinking about selling off the shares, and using that for your charitable contribution this year, so you can deduct a large amount from your taxes.

Youre off to a great start but wait before you sell that stock! If you sell the shares with the gain, you will have to pay capital gains tax up to 37%. In this case, youd be paying $1,060 in taxes. That leaves you with $4,810 of your proceeds in cash to donate to the organization of your choice.

Instead, if you donate the 20 shares, neither you nor the organization has to pay capital gains tax. They receive the full $5,870 and thats what you write off on your 2019 taxes. That extra $1,060 makes a huge difference to any local organization: it might mean expanded programming at the community center, extra staff on a campaign, or a new library for your religious institution. Plus, you get to bypass capital gains tax. Its a win-win!

But whether youre handling your stock donation yourself or using a service, you want to make sure you know what information to track so you can deduct the correct amount from next years taxes.

The Benefits Of Donating Appreciated Stock

TAX PLANNING TIP: Gift appreciated stock to nonprofit for charitable deduction

Opportunity may be knocking louder and harder than ever before for committed nonprofit organizations and the generous donors who are their lifeblood. Since bottoming out at the outset of the coronavirus pandemic on March 23, 2020, U.S. markets have staged a relentless rebound, with the S& P 500 ripping off a one-year advance of 76 percent, and the NASDAQ soaring a stunning 95 percent over the same period. For investors, that has resulted in hundreds of billions of dollars in as-yet-unrealized capital gains. Now, a substantial increase in the capital gains tax rate for top earners appears likely to happen.

This combination of events is likely to result in higher-income investors actively seeking out tax mitigation strategies. And donating appreciated stock and mutual fund shares offers a highly effective way for them to not only reduce their taxes, but to give more to the causes and communities that are important to them.

Lets take a closer look at how it works, starting with the tax benefits. As with most charitable contributions, donors are able to deduct the full fair market value of their gift from their taxable income. But perhaps even more compelling, especially with higher capital gains tax rates on the horizon, is the opportunity to avoid paying the long-term capital gains taxes which apply to investments held for more than one year that would be due if they simply sold the stock.

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