Gifts of Appreciated Securities
The following is an illustration of making a donation of appreciated stock versus making an outright gift of cash. By giving stock instead of cash, the net cost to the donor of this gift is reduced from $6,500 to $4,900.
Suppose you would like to make a $10,000 gift to The Cradle. If you write a check for $10,000, you will receive a $10,000 charitable income tax deduction. If you are in a 35% income tax bracket (federal and state) and itemize your deductions, you will reduce your taxes by $3,500 ($10,000 x 35%). The net cost of your gift will be $6,500 ($10,000 - $3,500).
Giving Appreciated Securities
Now, suppose instead of giving cash, you donate $10,000 of publicly-traded stock you purchased ten years ago for $2,000. First, just like a gift of cash, you will be able to claim a $10,000 income tax charitable deduction, thereby reducing your taxes by the same $3,500. In addition, you will avoid paying the capital gains tax you would have paid if you had sold the stock rather than giving it to charity.
If you sell the stock, you will realize an $8,000 long-term capital gain. If you are in a (federal and state) 20% capital gains tax bracket, you will pay $1,600 ($8,000 x 20%) in capital gains tax. However, by donating the stock instead, you will forever eliminate this potential tax liability.
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