Subscribe

A Publication of WTVP

Gifting appreciated securities such as stocks, bonds and mutual funds is a popular choice among charitable individuals. Doing so can be a simple way to help a favorite charity or cause, provide a significant tax benefit and allow you to rebalance your portfolio, all while being more cost-effective than simply donating cash.

Supporting community programs

Making charitable contributions can help fulfill your desire to give back to the community and share your good fortune with those less fortunate. In addition, you may provide much needed funding and support for important programs and services. Beyond these tangible and intangible benefits, though, there are also financial benefits to gifting securities to charity.

Tax benefits

First, there are tax advantages to consider. If you were to sell the stock and donate the cash rather than donate the actual security, you would be responsible for any capital gains tax on the sale. When a security that has appreciated in value is sold, a 15 percent tax is due on any long-term capital gain if you held the security for more than 12 months before selling. If the security has been held for a year or less, it is subject to taxation at your regular income tax bracket. So, by the time you’re ready to donate, a large portion of the money has already gone to Uncle Sam and you have less to give to charity.

By donating the security itself, the charity could sell it with no tax cost, and you could claim a tax deduction for the fair market value at the time of the gift. Keep in mind, however, donations of appreciated securities to public charities can only offset 30 percent of the donor’s adjusted gross income each year, whereas cash donations can offset 50 percent. In addition, these special tax benefits don’t apply to securities that have been held for a year or less. These rules can be complicated, so be sure to see a qualified accountant if these limits are a concern.

Portfolio enhancement

In addition to the tax benefits, donating your appreciated stocks gives you the opportunity to readjust your portfolio. If you have a stock that is highly appreciated, you may decide it’s time to “cash in” and realize the value you’ve gained before a market downturn takes that gain away. In addition, this security may have become too large a part of your portfolio, and gifting this while using available cash for other investments can be an effective way to diversify. Gifting appreciated shares in a timely manner can reduce the burden of these risks.

Simplify your life

A final benefit of gifting securities rather than cash applies to those who contribute weekly or monthly to religious organizations, for example. By making a one-time gift of stock, you eliminate the need to write that weekly check, which saves time. In addition, a one-time gift of stock rather than continuous cash gifts can reduce any strain on regular cash flow.

Donating assets to charity can help you realize a variety of benefits. You get to put your money to work and have the pleasure of helping a valuable cause. It’s a great situation where all involved parties end up ahead. Be sure to consult your tax or financial advisor to determine if this type of gifting strategy is right for you. IBI

Search