Donating Appreciated Securities

The continued strong economic climate of 2018 brings the potential of high capital gains for many investors. Donating appreciated securities to charity will reduce income tax liability and eliminate capital gains tax on the assets.

In addition, while the tax law increases the AGI limit on cash contributions, it maintains the rule that 30% of AGI can be contributed in securities. Maxing out the 30% limit in securities before contributing cash is a very tax-efficient method of charitable giving.

BENEFITS TO YOU AND OTHERS

With the approval of The American Taxpayer Relief Act of 2012 donating appreciated securities is now more powerful than ever before.

The increased capital gains rate is now 20% (up from 15%) for taxable income above $400,000 for single filers and $450,000 for joint filers. This higher capital gains rate, coupled with the introduction of the 3.8% Medicare tax on net investment income for single filers with modified AGI above $200,000 and joint filers with modified AGI above $250,000, can result in a 23.8% tax on a gain upon sale. When you donate appreciated shares, these taxes may be eliminated.

If you are selling appreciated stock, you can donate a portion of this stock to Mentors International and in some cases reduce the taxes that you would have paid with the donation amount keeping it very close to having the same amount of money in hand after your donation is made and the tax savings received.

FOR EXAMPLE

Suppose an individual has a stock with a basis of $200,000 and that stock appreciated to $600,000, their gain on a sale would be $400,000. Assuming this is taxed a LTCG and with the Surplus MedicareTax, they would be paying $115,200 in tax between state and federal depending on their resident state. If they were to contribute just $100,000 of the appreciated stock, they would be able to take a full $100,000 deduction, not recognize the gain of the appreciation as income saving them approximately $44,900 assuming they are in the highest tax bracket.

  • With No Donation: $600,000 cash in hand, less capital gain tax of $115,200 would leave the individual with $485,000
  • With Donation: $300,000 cash in hand, less capital gains tax of $79,492, add back in the Federal and State tax savings of $44,900 would leave the individual with $465,408. This is only a difference of$ 20,000 and the individual was able to make a $100,000 charitable donation. That is a big difference to a great cause for such a little cost!

HOW TO DONATE STOCK

Click here for a quick form to give to your tax advisor.

 

Please note that Mentors International is not in the business of providing tax advice. The scenario presented above is in simple terms and for presentation only. If you are considering such a donation, please consult the services of a tax professional to assist you with your donation.