Rethinking Your Charitable Gifting With Appreciated Stock

Amy Hubble |

Well it’s tax time again, and it always seems as we near the dreaded April 15th deadline, the weather suddenly turns perfect, and fooling with taxes is the last thing you or I want to worry about.

It’s probably too late to do much about last year (unless you’ve not yet contributed to a Roth IRA, in which case, shame on you, but you have until April 15th), but while taxes are on the mind, it’s a good time to start thinking about how to maximize your charitable deductions for tax year 2015.

Traditionally, we think of charitable giving as writing a check to our Alma Mater here, a charity auction there, or dropping $20 in the plate at church as it goes by.  We don’t think much about the total impact until we’re looking for all those donation acknowledgement letters to send along to our tax preparer.  

There are many reasons to give to charity, some of which are purely altruistic, but it’s also nice to get that tax deduction too right?  We hate to admit it, but tax planning plays a large factor in our decision to make charitable gifts; and for long-term investors, it may be possible to leverage that deduction even further by making a gift of appreciated stock instead of cash.

I’ll illustrate:

Let’s say you are in the 33% marginal tax bracket and want to make a donation from your investment account to your favorite charity.

You purchased 100 shares of Apple, Inc. on April 1, 2014 for $75.94/share

Today, one year later, those shares have appreciated 65% and are now worth $124.25/share leaving you with an unrealized long-term capital gain of $48.30/share in your portfolio.

Also, assume you rebalance your portfolio regularly, and that Apple should be trimmed to realign the portfolio to target (buy low, sell high ß don’t forget the golden rule)

Option 1

Sell your 100 shares for $124.24, use the proceeds to give cash to charity

Gross Sale Proceeds (assuming no trade commission LT Cap Gains Tax ($4,800*18.8%) Net Cash Gift to Charity Value of Tax Deduction ($11,516*33%) Net Tax Savings to Donor ($3,800-$908.04)
$12,242.00 -$908.04 $11,515.96 $3,800.27 $2,892.23

Option 2

Donate the 100 shares directly to the charity. The charity will immediately convert the shares to cash, but because they are a tax-free entity, will not have recognize any taxable gains.

Gross Sale Proceeds LT Cap Gans Tax Net Gift to Charity Value of Tax Deduction ($12,424*33%) Net Tax Savings to Donor
N/A -0- $12,424.00 $4,099.92 $4,099.9


Under this scenario, the donor is able to give $908.04 MORE to the charity, AND increase their own tax savings by $1,207.96

EVERYBODY WINS! (except the IRS)

As you can see, this strategy can be incredibly powerful for both the donor and the charity.  If you are planning on making a significant charitable donation in 2015, make sure and ask the development officer if they have an option to make in-kind stock donations.  Most do, and they will be happy to receive your generous gift!