Appreciated Stock Gifts Can Reduce Giver’s Taxes
On March 23 of this year, the Dow Jones Industrial Average was at about 18,600. It recently topped 30,000 for the first time. That means a lot of Americans are sitting on stock that has appreciated significantly in value. If that’s you: congratulations. However, what you do next could determine whether you will fully realize all that accumulated value.
One of the best ways to get the most out of appreciated stock is to give it away. Why? Because if you sell the stock, you will have to pay a 20 percent capital gains tax on any appreciated value. But if you give away that stock to a qualified non-profit ministry, you could be able to deduct the full value of the stock.
So, to use a simple example. Imagine you purchased stock worth $5000. The stock appreciates in value to $10,000. Your gain is $5000. If you sell that stock, you will have to pay $1000 in taxes on that gain. You will be able to give away only $9000, because Uncle Sam got 20 percent of the appreciated value. So the ministry you want to support gets less money, and your tax deduction is smaller, too. (I should reiterate that this a SIMPLE example. Everyone’s tax situation is different, and you should consult your tax professional before making a significant financial move.)
However, if you give away the appreciated stock, you can take the full $10,000 as a deduction, and you avoid paying the $1000 capital gains tax. The ministry you want to support gets more money, and you get a greater tax benefit.
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Does this sound too good to be true? It’s not. Donating stock directly to charity is time-tested and fully recognized as legitimate by the law. Still, it is widely used. According to a 2016 study by Fidelity Charitable, 80 percent of donors own appreciated assets, such as stocks, mutual funds or bonds, but only 21 percent of those donors have contributed these types of assets to charity.
Here are a few more tips to keep in mind:
- Again, please consult your tax professional before making a donation. The donation of appreciated stock is helpful only for those who itemize, and the new tax law has significantly reduced the number of people who do.
- I have used the language “appreciated stock,” but other appreciated assets, such as restricted stock, bit coin, art, or real estate might also qualify.
Most reputable Christian ministries of any significant size have had the experience of receiving gifts of appreciated stock. Most of them have accounts with organizations such as Stock Donator that allow donors to make contributions online.
With the stock markets at record highs, and with the COVID crisis highlighting the important work that non-profits do in this country, now might be a good time to consider this way of maximizing your year-end giving.