Donating stock to charity

When managed correctly, giving appreciated stock can be beneficial for the charity and the donor

Giving to charity is an important financial priority for many people. Most often this takes the form of donating cash or material goods. A less common strategy – but one that may be worth considering – is to give the gift of appreciated stock. When managed correctly, donating appreciated stock can be beneficial for the charity and the donor, allowing the donor to make a larger gift while potentially claiming a higher tax deduction. 

Generally speaking, a contribution to a qualified charity allows you to claim a tax deduction if you itemize deductions. When a stock has increased in value over time, and you intend to make a donation with the proceeds, you can approach it in two ways as illustrated by this example:

A married couple holds a stock valued at $10,000. The stock was purchased five years earlier for $5,000. The couple would like to liquidate the stock as a way to make a substantial gift to a local charity.

They can sell the stock, generating $10,000 in proceeds and then make the gift. Assuming that they owe long-term capital gains taxes at a rate of 15 percent on the $5,000 long-term capital gain, their net proceeds would be $4,250. In this case, the total after-tax proceeds available for the charity would be $9,250. This is also the maximum value of the tax deduction they could claim (the actual deduction available will depend on their income level).

But they also can give the shares of stock directly to the charity. By not selling the stock first, the couple would not have to recognize tax on the gain. Ownership would be transferred to the charity, which would generally be able to sell the stock at any time. Neither the couple nor the charity would be required to pay tax on the appreciated value when the sale occurs. The charity would receive a larger donation because the stock would be valued at $10,000. The couple would be able to claim up to a $10,000 tax deduction based on the fair market value of the stock on the day the gift is made.

If you have appreciated assets that might be appropriate to donate to charity, here are other factors to consider:

• The stock must be held for more than one year to qualify as capital gain property for the scenarios listed above. 

• The maximum amount you can deduct in a given year is limited to 30 percent of your adjusted gross income, because it is appreciated capital gain property. However, you can carry forward unused deductions for five years. You do have an option of deducting only the cost basis of the security, which would raise your deductible limit to 50 percent of your AGI.

• The total deductions you can claim in a year may be reduced if your income exceeds certain levels.

• Consult with your tax advisor to make sure your gift is handled properly in order to claim your tax deduction. Additionally, talk to your financial professional to see how you can make donations that are aligned with your financial goals.

Donating time

For many people, volunteerism is about more than simply doing something nice – it’s about enriching people’s lives and making the communities where we live and work a better place. But, did you know expenses related to volunteering may be tax deductible? For the avid volunteer, the savings could be worth the effort to track expenses related to your charity work. 

Transportation expenses: While you cannot deduct the time you spend on the road driving to and from volunteer events, you may be able to write off related expenses, such as parking, tolls and gas directly used in your charity work. If your charity work requires you to travel, you may be able to write off the amount you spent on public transportation, meals and accommodations. Keep reliable written records of your expenses, including the total amount incurred. With regard to driving expenses, keep track of the reason you drove and the date you used your car for the charitable activity.

Out-of-pocket expenses: If you need to make a purchase to perform your volunteer work, you may be able to claim the purchase as a tax deduction. As you tabulate your costs, be aware that the amounts must be unreimbursed, directly connected with the volunteer services, expenses incurred only because of the volunteer services you gave and unrelated to personal, living or family expenses.

For you to write off volunteer expenses or donations to charity, you must itemize deductions on your tax return and keep reliable written records of anything you intend to claim. Also note that you cannot claim a deduction on your tax return for the value of donated time or services. 

Robert Bonfiglio, a certified financial planner, is managing director and private wealth advisor at Rise Private Wealth Management in Bedford. He can be contacted at 603-606-4255 or bobbonfiglio.com.