Tax advantages of donating stock
The stock market has bounced back since the Great Recession, with some stocks appreciating more than 100, 200 or even 1,000 fold.
These gains can provide big tax advantages for stockholders interested in donating shares to The Salvation Army, allowing their gifts to accomplish more than what a cash donation might provide.
“In giving cash, you still get a charitable deduction, and that’s the main thing from a tax standpoint,” said Ann Burns, an attorney at Gray Plant Mooty and a longtime Salvation Army supporter. “But giving appreciated stock means not only do you get your charitable deduction same as cash, but you also avoid the capital gain that you would have otherwise realized on the sale of the stock.”
For example, let’s say you own a publicly traded stock that was purchased for $1,000 at $10 per share. To keep things simple, let’s say that stock is now worth $5,000 at $50 per share. That’s a capital gain or an appreciation of $4,000. Depending on your income tax bracket, if you were to cash that stock, you would likely have to pay both state and federal taxes on the capital gains.
“The capital gain for federal tax purposes is about 20 percent, but it goes up as your income increases,” Burns explained. “A lot of people live in states that have state income tax on capital gains as well, so when you add the federal and state taxes, you can be in the 30 to 40 percent range pretty quickly.”
Suddenly, after taxes, that $4,000 in earnings has dropped to somewhere around $2,500.
But these tax penalties can be avoided through a donation of appreciated stock – The Salvation Army is not required to pay tax on your donation, be it stocks or cash. Additionally, your donation can be deducted directly from your income taxes.
To put that into perspective, let’s say you give The Salvation Army that same $5,000 worth of appreciated stock. Not only does the Army not pay taxes on the donation, but neither do you. Even better, you are able to reduce your personal income tax by $5,000. So if your taxable income was initially $60,000, the stock donation reduces it to $55,000.
“The tax savings from a charitable gift like that could be in the thousands of dollars – it’s a wonderful asset to use for charitable giving,” Burns said. “The charity doesn’t pay the tax and you get the charitable income tax deduction, so it’s a win all the way around.”
Video
Watch the video below which explains the advantages of appreciated stock.
Burns was a guest speaker at The Salvation Army and Securian Trust Company’s 22nd annual Estate and Charitable Gift Planning Institute seminar, held Sept. 16 at the Minneapolis Convention Center.
Learn more about donating stock. Or, call 651-746-3504 or 1-800-456-4483 to talk to a Salvation Army Planned Giving representative.