Giving the Gift of Appreciated Securities

Posted by Christina K. Bell, CPA

Appreciated SecuritiesThe holidays are a great time for thinking outside of the box to find that perfect present for someone special. Many nonprofit organizations would like their donors to think outside of the box when making their end-of-year donations, specifically, contributing appreciated securities (stock, mutual funds and bonds) as an alternative to cash. Donating securities which have appreciated in value offer specific tax benefits to you and many nonprofit organizations have policies and procedures in place to easily and happily receive them.

So what are the benefits? First, when donating your securities which have appreciated in value, you are excluded from paying federal or state taxes on the capital gains. In addition, you may deduct the entire fair market value at the time of donation from your income taxes; however, this deduction is limited to 30% of your adjusted gross income and to 20% if the donation is being contributed to a private foundation. Amounts in excess of this limit may be carried forward for up to 5 years. Below is an example:

Jane Smith is in the 28 percent tax bracket and she owns securities currently valued at $30,000. She purchased these securities several years ago for $4,000. She contributes the securities to a qualifying 501(c) organization and takes a $30,000 charitable deduction. In addition to avoiding a $3,900 capital gains tax (15% of $26,000), Jane immediately saves $8,400 of federal income taxes (15% of $30,000). Thus her contribution only cost her $21,600 ($30,000 less $8,400 tax savings).

In order to receive these benefits you must be itemizing your tax deductions, have held the securities over a year, and the organization in which you are donating to must be a registered 501(c)(3) charity or qualified religious organization that can lawfully accept tax-exempt donations.

It is also important to note that individuals in higher tax brackets will experience greater benefits due to the savings experienced from higher capital gains tax rates. Capital gains tax rates are increasing from 15% to 20% for singles with taxable income over $400,000 and couples with taxable income over $450,000 in 2013. In addition, it should not be overlooked that if you are carrying a security at a loss, meaning it is worth less now than what you originally paid, it is more beneficial to you to first sell the stock and then donate the proceeds to charity since the sale would trigger a capital loss.

Before making a decision to liquidate securities it is advisable to consult with your tax accountant to fully understand all applicable IRS codes and regulations.

Photo by voxtheory (License)

Leave a Reply