Tax-Savvy Giving: Gifting Appreciated Securities

J. Abigail Mason Charitable Giving

Impact is everything when it comes to charitable giving. The impact it has on the recipient. And
the impact it has on you. Both can, and should, be positive.

One way to “supercharge” your generosity is to donate shares of appreciated securities. Doing so is
an effective way to support the causes you care about and, at the same time, save on taxes. Think
of it as a win-win scenario: when you give appreciated securities to a charity, you can deduct the
market value of the stock at the time of the donation, and the charitable organization is allowed
to sell the stock without paying capital gain taxes.

To get a bit more specific: First, you will only benefit if you give shares that have an accrued
long-term capital gain. You will, of course, still get a charitable deduction for the value of the
shares, but it would be no different than donating cash. Second, you should only donate securities
that you were otherwise going to sell. The tax (up to 20%) on capital gains only applies when you
sell your investment.

To get far more specific: By itemizing, you can deduct charitable contributions up to 30% of your
income if you donate appreciated assets. You may carry over the remaining deduction to offset
future income if your charitable contribution is larger than that percentage.
If you feel uncomfortable giving a “larger-than-normal” amount of money to charity in one year,
consider setting up a donor-advised escrow fund, which allows you to receive the tax deduction of
the gift in a single year while retaining the option to spread the distributions to charities over
an extended period.

How it works in the real world: Assume you make a gift of $5,000, while at the same time you are
planning to dispose of the shares of a publicly traded company that you’ve held for several years.
The shares, currently worth$5,000, were purchased several years ago for $1,000. The difference between the fair market value purchase price is an accrued capital gain of $4,000. Comparing the cost of the donation to you, assume first that you sell the shares and donate $5,000 in cash; and se at you donate the shares directly to the charity.

As you can see in the chart: Based on the $5,000 gift, by gifting your shares directly to your
favorite charity rather than selling the shares you will have saved $800 in tax on your capital gains. That’s good for the charity. And it’s good for you.

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