Year End Tax: Giving Appreciated Securities/Stock

As year–end approaches, tax saving strategies become widely publicized. One of the most popular strategies available to taxpayers who itemize is to make a gift to a qualified charitable organization. Charitable gifts made by year’s end entitle a donor to an income tax deduction.

While a gift in cash, via check or credit card to the United Way of Pioneer Valley (UWPV) is always welcome during the holiday season, donating appreciated securities (shares of stock with significant gains) is frequently overlooked and offers the donor both a deduction plus a savings of capital gains tax applicable when the securities are sold.

Gifting of appreciated securities to UWPV is relatively simple. A one-page procedures sheet is available on the UWPV website, or simply give us a call and we will promptly mail it to you.

How It Works

Assume Arthur purchased 100 shares of stock for $10,000.00 ($100.00 per share) twenty years ago. The stock is now worth $50,000.00. If Arthur decides to sell the stock in 2015 he would have to include a capital gain of $40,000.00 into income. Depending upon Arthur’s federal income tax bracket, he could incur additional capital gains tax of up to $8000.00 (20%). (To simplify this example, neither the Massachusetts capital gains tax nor 3.8% Medicare surtax are considered.)

Rather than sell the stock, if Arthur gave it to UWPV, he would be entitled to a deduction of $50,000.00–an amount equal to the full fair market value of the stock. Since he is giving the stock, rather than selling it, he would incur no capital gains tax. Again, depending upon his federal tax bracket, he could enjoy a tax savings of as much as $19,800.00 in the top bracket of 39.6% (and as examples, tax savings of $17,500.00 in the 35% bracket, $14,000 at 28%, and $7500.00 at 25%). This potential tax savings may offset some of Arthur’s other taxable income thus mitigating his overall 2015 federal tax liability. 

Points to remember:

1) A donor’s federal income tax bracket determines the rate and amount of capital gains tax when appreciated stock is sold and the tax savings obtained if the stock is donated to charity.

2) The deduction for a gift of appreciated securities/stock to charity is limited to no more than 30% of the donor’s adjusted gross income in the year of the gift, but any remaining unused deduction may be taken each year up to the 30% limit for up to an additional five years.

If you want to make a gift, but own stock that has a loss as opposed to a gain, it is recommended that you sell it first enabling you to take any loss on your income tax return and gift the net proceeds in cash to UWPV.

The prevailing practice among charitable organizations including UWPV is to liquidate gifted stock.

Planning ideas funded by gifts of appreciated securities/stock

1) A donor age 65 or older may establish a charitable gift annuity ($25,000.00 minimum) that will pay him (and spouse) a joint and survivor, guaranteed, fixed income for life.

2) A donor in mid-to-late career (typically approximate minimum age 45 to 50) may establish a deferred charitable gift annuity ($25,000.00 minimum) to supplement their retirement plan income. A joint and survivor option is also available.

Note: Charitable gift annuities and deferred charitable gift annuities are governed by federal tax law. Most notably, since income is being paid to the donor based largely upon the amount of the gift and donor/annuitant’s age, the amount of the donor’s deduction must be reduced to less than full fair market value based upon an IRS formula.

Note: If you want to explore a charitable gift annuity or deferred charitable gift annuity, please speak with UWPV first to obtain a proposal as your decision to establish a gift annuity must be made prior to or at the same time as your gift of stock. United Way Worldwide (not UWPV) enters the gift annuity agreement with the donor. The financial backing of the national United Way organization as payor is a strong incentive to establish a gift annuity.

3) A donor may use a gift of stock to provide premium for a new or existing life insurance policy owned by or transferred to UWPV.

4) A donor may establish a charitable remainder trust. Although a charitable remainder trust provides the same basic benefits to the donor and charitable recipient as a charitable gift annuity, they are expensive to create and administer thus requiring a large gift of stock to be economically feasible.

5) A donor may use a gift of stock to fulfill a pledge obligation.

A year end gift of appreciated securities to UWPV not only provides you with significant tax benefits and savings, but shows your commitment to improving the lives of the residents of Pioneer Valley.

Questions should be directed to Steven Toth, JD, MS, CLU, ChFC at UWPV.

Office: 413-693-0237
Cell: 804-380-5372

Disclaimer: United Way of Pioneer Valley does not provide legal, tax, accounting or other related professional advice. Such advice must be sought from the reader’s own advisors. The information provided here is for general informational purposes only.



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