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Stock Gifts Often Trump Cash For Charitable Contributions

Stock Gifts Often Trump Cash For Charitable Contributions

3 min read

During the holidays, Bob wanted to make a generous $5,000 gift to his favorite charity. After paying for holiday gifts for family and friends, Bob had $10,000 left in his checking account. He had also been sitting on a bunch of Apple stock, valued at about the $20,000, in a non-managed brokerage account. Bob pulled out his checkbook with a smile and a sense of pride, and dropped that $5,000 donation check in the mail.

Good karma must have eluded Bob, because the next day while driving, his car broke down. The repair shop notified him that his repairs would run (ironically) about $5,000. Not wanting to come out of the holiday season with a fully depleted checking account, Bob decided to liquidate some of the Apple stock to cover the cost of the repairs.

Unfortunately, Bob bought the stock many years ago for about $2,000, so he’ll have taxes to pay in April–to the tune of $675 (15% capital gains tax on a $4,500 gain.) He’ll still have a charitable deduction of $5,000 on his taxes. However, had Bob fully thought through the charitable gift, he’d have realized there was a better way to manage both of these expenses.

Understandably, the auto repair shop would not accept Bob’s Apple shares in exchange for body work to his car. The qualified charity, on the other hand, could have. In retrospect, Bob could have donated the appreciated Apple stock to the charity and realized the same deduction, while avoiding the capital gains taxes altogether. He also could have avoided transaction costs associated with the stock sale. At the same time, he would also have maintained cash in his checking account for the car repairs, and wouldn’t have had to worry about going into credit card debt.

The lesson here: If you made a cash gift to your favorite charity in 2014, there could be a better way to be charitable this year. As highlighted above, one strategy is to make a gift of appreciated stock. If you’ve held a security for more than one year, you may take a charitable tax deduction for the fair market value of the stock, and neither you nor the charity has to pay capital gains taxes when the stock is sold.

Let’s say our hypothetical Bob, who is in the 25% federal tax bracket, donates $5,000 of appreciated securities with a cost basis of $500. The deduction will produce roughly $1,250 in tax savings and Bob will avoid the capital gains tax of $675. The end result: The appreciated securities donation saves Bob a cumulative $1,925 in taxes. Not a bad “thank you” for such a generous gift.

For more details on gifting strategies, check in with your Wealth Advisor and tax professional.

 

Important Disclosure Information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested.  Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable. Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request. This article is not a substitute for personalized advice from RegentAtlantic.  This information is current only as of the date on which it was sent.  The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic.  Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

This information is based on our understanding of current tax legislation.  Congress may change tax legislation at any time.

Please remember RegentAtlantic does provide tax advice.  Please consult your tax advisor before implementing any of the strategies discussed in this article.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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