Charitable giving can take many forms. Whether you gift on an annual basis or you are planning to make a one-time gift, make sure you are maximizing the tax benefits associated with your gift. One way to do this is to compare gifting cash versus stock.

Most people donate to charity in the form of cash. This can be a huge mistake, especially if they hold securities with unrealized long-term gains. Donating appreciated stock is a cashless transaction that yields additional tax benefits to the donor. First, the donor receives an itemized deduction equal to the fair market value (FMV) of the stock. FMV is calculated as the high-low average of the stock price on the day contributed. This deduction is limited to 30% of the donor’s adjusted gross income (AGI) for gifts to public charities. Any amount over the 30% AGI limitation can be carried forward for a maximum of five years. Second, the donor does not have to realize the gain on appreciation of the securities. That is a savings of up to 20% in capital gains tax and another 3.8% in net investment income tax. Remember, this is for stock with a long-term holding period.

Below is a side-by-side comparison showing the benefits of donating appreciated stock.

It’s clear that donating long-term appreciated securities is a more tax-efficient way to donate to charity, yet very few taxpayers utilize this strategy. It may be because donors do not realize they can contribute securities to charity or because they want to continue to maintain their current holdings. If you wish to continue to own the stock of a particular company, you can utilize the cash that you would otherwise be donating to charity to repurchase the stock at the current FMV. This effectively generates a charitable deduction and avoids a taxable event, yet allows you to reestablish your desired position at a higher cost basis, allowing you to continue participating in growth and dividends.

IMPORTANT DISCLOSURES

The IIAR and NRF reserve investment funds are currently managed by Stifel Financial Services under the investment policy established by their respective board of directors. Members of IIAR may use the services of Stifel for personal and business investments and take advantage of the reduced rate structure offered with IIAR membership. For additional wealth planning assistance, contact your Stifel representative, Jeff Howard or Jim Lenaghan, at (251) 340-5044.

Stifel does not provide legal or tax advice. You should consult with your legal and tax advisors regarding your particular situation.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.