by Lee Sheilds, CPA
By Lee Sheilds, CPA, Partner, Friedman LLP, and Chair of Samaritan’s Planned Giving Committee, a volunteer group of the region’s leading financial professionals, lending their time and expertise to guide the charitable estate planning efforts.
Donating to your favorite charity not only provides the wonderful feeling of doing good for others, but can also offer possible large tax deductions. On top of that, it’s one of the most flexible tax planning tools as you can control the timing to best meet your needs. Well-planned gifts also can save estate tax while allowing you to take care of your heirs in the manner you choose.
Publicly traded stock and other securities you’ve held more than one year are long-term capital gains property, which can make one of the best charitable gifts. Why?
If you’ve held it for more than one year you may take a charitable tax deduction for the market value of the stock, and neither you, nor the charity, has to pay capital-gains taxes when the stock is sold. This strategy has become even more advantageous in recent years with the inception of the new Net Investment Income Tax which started in 2013. The combination can result in a bigger deduction (and more tax savings) for you and a bigger gift for the charity than if you sell the stock, pay the taxes, and donate the net proceeds.
Suppose you own a security that you paid $2,000 for which has appreciated in value to $10,000. In addition you are considering contributing to one of your favorite charitable organizations. You could choose to donate the appreciated securities, donate cash or sell the securities then donate the cash.
DONATE APPRECIATED SECURITIES
SELL SECURITIES THEN DONATE CASH
|Income Tax Savings – 35%||$3,500||$3,500||$3,500|
|Capital Gains – $8,000 gain – 20% plus 3.8% NIIT||$1,904 saved||–||$1,904 paid|
Clearly the above illustrates that the most advantageous way to structure this transaction is to donate the appreciated securities. Remember the result for the charitable organization in these three scenarios is the same, they receive an asset, either cash or securities, valued at $10,000.
Please keep in mind various limits that could reduce the tax benefits of your donations. To ensure your gifts do as much as possible for both your favorite charities and your tax bill, discuss with your tax advisor which assets to give and the best ways to give them.
To learn more about gifts of appreciated stock (including DTC instructions for direct wire transfer), and the potential advantages of charitable estate planning, please contact Samaritan’s Chief Development Officer, Chris Rollins, CFRE, at (856) 552-3287.