As we approach the end of the year, many investors consider making charitable gifts to their favorite charities.
As we approach the end of the year, many investors consider making charitable gifts to their favorite charities. Often, these gifts are made via cash or check. Investors may receive more tax benefits for their gifts by donating long-term appreciated stock instead.
Comparing the Tax Benefits
When you gift cash or stocks, you may potentially reduce your current income tax liability. Of course, to get this benefit, you have to itemize your deductions on your federal income tax return. The amount you actually save depends on your tax bracket. As an example, in a 35% marginal tax bracket, a $10,000 gift to charity could save you $3,500 in taxes and in a 15% marginal tax bracket, the same gift could save you $1,500 in taxes. However, when you gift long-term appreciated stock to charity, you get an additional tax benefit: you’ll avoid paying tax on the “built-in” capital gain of the investment.
Examples of Giving Stock vs. Cash
Let’s assume an investor gives $10,000 to a charity, and his marginal tax bracket is 33%.
Example 1 assumes the gift is $10,000 cash.
Example 2 assumes the gift is long-term appreciated stock with a cost basis of $2,000 and a fair market value of $10,000 on the date of the transfer.
| Income Tax Saved | Capital Gain Tax Avoided | Medicare Tax on Investment Income Avoided | |
| Example 1 | $10,000 x 33% =$3,300 | N/A | N/A |
| Example 2 | $10,000 x 33% =$3,300 | $8,000 x 15% =$1,200 | $8,000 x 3.8% =$304 |
Now let’s assume the same gift is made by an individual in a marginal 39.6% tax bracket:
| Income Tax Saved | Capital Gain Tax Avoided | Medicare Tax on Investment Income Avoided | |
| Example 1 | $10,000 x 39.6% =$3,960 | N/A | N/A |
| Example 2 | $10,000 x 39.6% =$3,960 | $8,000 x 20% =$1,600 | $8,000 x 3.8% =$304 |
These examples show that donating long-term appreciated stock rather than cash potentially provides an additional tax benefit to the donor. This is only a hypothetical example. Actual tax benefits will vary depending on the details of your overall income tax situation, the type of property donated, and the type of organization that receives your gift.
As a client of Blue Bell Private Wealth Management, LLC (“Company”), by selecting the “I Agree” button, I elect to participate in the password-protected access portion of Company Internet web site. I understand that my participation will allow me to review certain investment-related information published by Company and unaffiliated third parties. This password-protected access is made available to clients of Company free of charge. This authorization shall continue until canceled in writing.
I understand that the password-protected section is a secure web site intended only to allow a client access to information relative to his/her/its specific account. I also understand that I will be assigned an individual password. I agree not to share my password with any other person. I hereby release and hold Company harmless from any adverse consequences relative to any failure by me to keep the identity of my password secure.
Access your personal financial planning home page. Your homepage allows you to organize, store, and monitor all your personal financial information, including access to all of your accounts, credit cards, mortgages, insurance, and investments from a wide range of sources.
Access your account information, Blue Bell quarterly reports and commentary as well as Schwab statements and tax documents.
