Financial Planning: Gifts & Donations.
The tax treatment is the same as it is for donations of any stock to a qualified charity (gifts of stock are covered by another FAQ). After you have held the stock for more than one year, at the time of the donation you get a tax deduction equal to the fair market value of the stock (not to your cost basis). For stock acquired from an option exercise or an ESPP purchase, the holding period begins on the day after exercise/purchase, while for restricted stock it starts on the day after vesting.
For public companies with an active market in their stock, the fair market value is the average between the high and the low stock prices on the delivery date, unless the stock is still subject to resale and transfer restrictions. For the stock of pre-IPO companies, you need a valuation by appraisal or some other reasonable valuation method (see IRS Revenue Ruling 59-60, which lists valuation factors and explains that no general formula can be used in every private company situation). The delivery date is when the stock is valued and determines the deduction year.
With your tax return, you need to file IRS Form 8283 for your noncash charitable contribution. The instructions for the form explain the rules that apply when you must obtain and include a written appraisal. For example: With private-company stock valued at $10,000 or less, a qualified appraisal is not needed (it is for higher amounts), but the charity needs to explain how it determined the valuation (see Section B, Part 1). For a donation of publicly traded stock, you do not need an appraisal, but you do need to report the donation on Section A of Form 8283.
If the sale of the appreciated shares would have triggered long-term capital gains, your deduction is up to 30% of your adjusted gross income (20% for family foundations), and you can carry forward amounts over this for five years. The tax treatment of gifting stock to donor-advised funds is similar to that of donating stock to qualified public charities.
When you donate stock, to implement the transfer you need the charity's brokerage account information, with the DTC (Depository Trust Company) number and an account number. Your instructions to your brokerage firm should include this information and any specific lot identification.
Alert: For year-end donations, be sure the stock transfer is completed by December 31 to make it count for the current tax year. For electronic transfers from your brokerage account, the donation is recorded on the day it is received by the charity/foundation (not when you approve the transfer). With increased year-end activity at brokerage firms, you should plan your year-end stock gifts as early as possible and have ongoing communications with your broker to ensure that the transfer takes place. For other ideas on year-end planning, see another FAQ.
With a charitable gift of appreciated shares held long-term, the donation you make and the deduction you get are greater than they would be if you were to instead sell the shares and donate the cash proceeds. This is because when you donate shares, you avoid paying the capital gains tax. Instead, you get a full deduction for the fair market value of the shares.
You can either (1) donate $100,000 in company stock or (2) sell the stock first and donate the proceeds.
Stock: You donate $100,000 in company stock that you have held for at least one year (10,000 shares trading at $10 per share that you received at $1 per share) to a favorite charity. Your $100,000 tax deduction results in tax savings of $40,000 (assuming a 40% combined federal and state tax rate on your income).
Cash: You sell 10,000 shares, worth $100,000, and donate the cash. On your $90,000 gain ($100,000 minus the cost basis of $10,000) you pay $18,450 in taxes (15% federal capital gains tax plus the 5.5% state tax), resulting in $81,550. This amount will be lower if you trigger the 20% tax rate on capital gains and the 3.8% Medicare surtax. You get a tax deduction for the net amount of cash that you have donated. Your tax savings are $32,620 (40% of $81,550), $7,380 less than the tax savings with a donation of stock.
Tax Deduction For Short-Term Holdings.
For stock that is not held one year, such as shares you may have recently received from an option exercise, ESPP purchase, or restricted stock vesting, the deduction is the cost basis or the current fair market value, whichever is lower. When the sale of the shares would have produced ordinary income or short-term capital gain, the deduction is limited to 50% of your adjusted gross income (30% for family foundations) with five-year carry-forwards. For stocks you hold that have dropped in value, you are better off with selling them first, to generate a capital loss for tax-loss harvesting, and then donating the proceeds.
For more details on the tax rules of charitable giving, including stock valuation, see IRS Publications 526 and 561. For details on using charitable remainder trusts (CRTs) to donate company stock, see our article series on that topic.
Alert: If the donated shares were acquired from ISOs or an ESPP, additional tax consequences occur if you donate the shares before you have met the required holding periods. (See also the FAQs on donating shares from a Section 423 ESPP after meeting the holding period, and gifting/donating ISO shares after triggering AMT.) Executives and directors will also want to review the Section 16 and Rule 144 requirements before gifting or donating company stock.
Can I donate stock to charity?
Stewart, Dan.
Absolutely, and you get a deduction for the FMV at the date of contribution. You will also avoid Capital Gains tax if you donate the appreciated stock, directly assuming it has depreciated. This is a better strategy than selling the stock and contributing the cash. This is assuming a gain. If you had a loss, then you want to sell the stock, take the Capital Loss, offset your Capital Gains, and contribute the cash. Hope this helps and Happy Holidays. Dan Stewart CFA®
P. S. I forgot to add, this also assumes you Itemize and may be phased (limited) if your income is real high. But under most situations, the answer is yes, and the above strategy applies.
Hardy, Chris.
One of the best ways to give to charity is through highly appreciated stock. Here is how this works:
Contact the charity where you would like your donation to go. Most will have a brokerage account set up with one of the larger brokerage firms. They will give you wiring instructions to have the stock transferred. You will want to make sure that your brokerage firm knows that you DO NOT want to sell the stock, but are wanting to "transfer in kind" to the charity. That way, the charity can sell the stock and use the funds for the charitable purpose without having to pay any taxes on the gain.
Now, if you have a stock that has a built in loss, do not give this "in kind." Instead, you will want to sell the stock at a loss in order to take the loss on your personal tax return AND use the proceeds to give to the charity which will go on your Schedule A as an Itemized Deduction.
Giving stock is one of the best ways to support great causes and use the tax code to your advantage!
Investopedia.
Giving stock, instead of cash, as a donation can greatly benefit both parties. You will find that most charities, hospitals, schools and other nonprofit organizations will accept stock as a gift or donation.
If the stock has increased in value from the time of purchase, the owner can avoid paying the capital gains tax by donating the security to another party. When the security is being donated to a charitable organization, the total amount will still be eligible for a tax deduction. Since taxation is avoided on the stock donation, the giver will be able to make a larger donation.
For example, let's say you were looking to make a $1,000 donation to a charity. You could either give cash or donate stock. Let's assume that the you bought stock for a original purchase price of $700, but it is now worth $1,128.55. To make it simple, let's assume capital gains tax is 30% of the stock's appreciation. Selling the shares for cash would net about $1,000 after capital gains tax (1,128.55 - (1,128.55 - 700)*0.30). In this case, you should be indifferent between donating the entire stock or giving cash, as both choices will cost you $1,000. However, the charity can receive more benefit from a stock donation, as they will receive a gift valued at $1,128.55, instead of the $1,000 in cash.
For additional information on how to give stock as a gift, read Can I give stock as a gift?
Troyano, Robert.
Many 501(c)3 charities will accept appreciated stock as a donation. If the stock happens to be trading less than your cost, it would be better to sell the stock first and take the tax loss. You can then donate the cash.
If the stock happens to be held in an individual retirement account, you can also sell it first, donate the cash and it will not have to be reported as taxable income on your tax return.
Creedon, Peter J.
The short answer is yes. It is very common to gift, usually appreciated stock without selling it, so you do not have to pay capital gains tax, get the charitable gift deduction on your tax return, and accomplish a tremendous personal accomplishment that helps a cause important to you.
I suggest you discuss the gift with your tax advisor, since there a few issues to be aware of such as the charity should be a qualified charity, how much will be eligible for deduction, and the impact on your taxes. On a personal note, also understand how the gift fits into your overall estate plan, how and when you wish the gift to be given (during your life, after you pass or spouse passes or over some specific time), do you make the gift during your life and wish to take the income (dividends) while alive from the stock, or one of many other scenarios available to you. There are many different ways to give under many different scenarios based on what you want to accomplish. I suggest you carefully consider what you want to achieve and under what circumstances the charity can use the funds (for a specific cause, and not administrative overhead, etc.), then discuss your thinking with your tax advisor and an estate planning attorney to help put your wishes into writing and ensure you understand all your alternatives of what you can do and the advantages to you. Gifting is very personal and you can accomplish or move forward some very great causes with your donation, no matter its size.
Donate Stock or Cash to Charity?
When giving a gift, how your investment has fared will make a big difference on your taxes.
Which is better -- donate stock to a charity or donate the proceeds from selling the stock?
It depends on whether you've gained or lost money on the investment.
If the stock has increased in value since you bought it, then you'll be better off donating it to charity instead of selling it. That way, you'll avoid the capital-gains taxes on the profit. Say you bought 100 shares of a stock at $10 and it's now worth $40 per share. If you give the stock to charity, you won't have to pay the capital-gains taxes on the $3,000 in profit. If you held the stock for more than a year and are in the 15% long-term capital gains tax bracket, that move will save you $450 in taxes, which you'd owe if you sold the stock first. And if you've owned the stock for more than a year, you'll still be able to deduct its current market value -- $4,000 -- as a charitable contribution on your taxes if you itemize, like you would whether you gave stock or cash. (If you held the stock for one year or less, then you'd only be able to deduct the original $1,000 purchase price.)
If the stock has decreased in value, though, it's better to cash it in first so you can deduct the loss. If that 100 shares of stock you bought at $10 is now worth $4, for example, you'll be able to write off the $600 loss if you sell the stock before giving the money away. If you held the stock for more than a year and are in the 15% long-term capital-gains bracket, for example, that move can save you $90. And you'll still be able to deduct the value of the gift as a charitable contribution -- $400 in this case.
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Before you give away stock, first make sure the charity is set up to deal with the gift. Some small charities don't have brokerage accounts and may have a tough time selling the stock or mutual funds.
Another option: Set up a donor-advised fund. You can then give the stock to the donor-advised fund, which sells the investment and gives the cash to the charity. You'll get a tax deduction for the charitable gift when you transfer the stock to the donor-advised fund, but will have unlimited time to decide which charity to support -- making it a good move if you'd like to make a donation before year-end for tax purposes but would like some extra time to select the charity. For more information about donor-advised funds, see Philanthropy Made Easy.
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5 Things You Should Know About Giving Stock to Charity.
Donating stock instead of cash may help you get a bigger tax break.
December 1, 2015.
Is it better to give stock or cash to a charity? Do I need to do anything special to give stock?
See Also: How to Make the Most of Your Charitable Giving.
The best strategy depends on whether the stock has increased or decreased in value since you bought it and whether you've owned it for more than a year. Here are five things to know about giving stock to charity to get the maximum tax break.
1. Giving appreciated stock you’ve held for more than a year is better than giving cash. If you donate stock that has increased in value since you bought it more than a year ago – and if you itemize deductions -- you can take a charitable deduction for the stock’s fair market value on the day you give it away. You’ll also avoid capital-gains taxes on the increase in value over time, which you would have had to pay if you sold the stock then gave the charity the cash proceeds. You can deduct the fair market value only if you hold the stock for more than a year before giving it away. If you’ve held it for less than a year, your deduction is limited to your cost basis -- what you paid for the stock -- not the current value.
2. If it’s a losing stock, it’s better to sell it and give the cash. If the stock has lost value, it’s better to sell the stock first and give the cash to the charity. You’ll still be able to deduct your charitable donation if you itemize, but you’ll also be able to take a capital loss when you sell the investment.
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3. Ask the charity and brokerage firm about the procedure and time frame for giving stock. Most banks and brokerage firms require a letter of instruction or letter of authorization to transfer the shares to charity, and a mutual fund company may have a special form. It’s a good idea to start the process at least a week before December 31, so the transfer has plenty of time to be completed during the holidays. Jane Wilton, general counsel for the New York Community Trust, recommends transferring mutual fund shares a few weeks earlier. “Some mutual fund companies are faster than others,” she says.
4. You can buy extra time with a donor-advised fund. If you’d like to transfer shares when the value reaches a certain level but want extra time to decide which charity to support, you could give the stock to a donor-advised fund. You usually need $5,000 to $10,000 to open a donor-advised fund at a brokerage firm, mutual fund company or community foundation. You can take a charitable deduction when you give the shares to the donor-advised fund, but you have unlimited time to decide which charities to support. The donor-advised fund may also accept privately held stock, real estate and other complex investments. See Donor-Advised Funds: Tax Break Now, Charity Later for more information.
5. The timing may be tricky if you donate your required minimum distribution from a retirement account. If you’d like to transfer your RMD to charity, delay taking your RMD until Congress passes the law allowing it for 2015. For the past few years, people over age 70½ have been able to transfer up to $100,000 from their IRAs to charity tax-free. The gift counts as their required minimum distribution for the year, but it is not included in their adjusted gross income. This can be a great way to avoid having to pay taxes on your RMD if you want to support a charity, and it gives you a tax break even if you don’t itemize your deductions.
But Congress usually waits until the end of the year to extend the law. To count for the tax break, you generally need to transfer the money directly from the IRA to the charity, and you can’t touch it first. So it’s a good idea to wait until Congress approves the law for 2015 before taking your RMD. But if Congress still hasn’t acted by mid December, ask your IRA administrator how long you can wait and still meet your RMD deadline. If you don’t take the money by December 31, you may have to pay a penalty of 50% of the amount you should have taken but didn’t. See Tax-Free Transfers From IRAs to Charity Are Still on Hold for more information.
See Also: 15 Tax Deductions You Won't Believe Are Real.
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