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Gifts of Stock and Mutual Funds

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Gifts of Stock and Mutual Funds

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This is good, but when you go to cash them in you are creating a taxable event that can cost you a generous amount in tax.

However, by making a gift of publicly traded stock, bonds or mutual fund shared directly from a taxable investment account, a donor is allowed a charitable income tax deduction based the current market value of the security. The donor can avoid the capital gains tax that otherwise would be due by donating the shares directly. This provides the largest tax deduction to the donor and a larger gift to the Church or other charitable organization.

Below in this example we assume the donor wants to donate $25,000 worth of appreciated securities to the Church. The donor files taxes as a single and is in the 32 percent income tax bracket. They pay a 20 percent rate for the capital gains tax. The donor only paid $5,000 for the investment and it now has a $20,000 reportable profit (capital gain) when it sells. (In most situations, the cost basis of an asset is its cost to you.)

The maximum capital gains rates run between 25 percent and 33 percent depending on which state a donor lives in.
In this example, donating the security directly results in no capital gains tax being paid, a larger itemized deduction and a larger gift to the Church Sell Security and Donate the Net Cash Donate Security Directly
Current Fair Market Value of Security 100 shares × $250 per share with a cost basis of $50 per share—$25,000 100 shares × $250 per share with a cost basis of $50 per share—$25,000
Capital Gain Tax (Long Term) Due $20,000 gain @ 20% = $4,000 $0
Amount Gifted to Church $21,000 $25,000
Charitable Tax Deduction
(32% × $21,000)
$6,720 $8,000
Total Tax Deduction Charitable tax deduction (-) Capital Gain = Tax Due of $2,720 $8,000

 

 

Some people have stock that was given to them from former employers, or a life insurance company that made some corporate changes. These businesses provided people with a small number of stock shares. These shares may be valued at a few hundred dollars to few thousand. For many these are the only single name issued stocks they own. Shares of stock like this can make a perfect gift. On the other hand, inheriting such stock is often a messy process.

Some people have stock or mutual fund accounts that have done well. Often these growth assets become a large portion of a portfolio, but never get exchanged to something else more suitable because of the high tax liability. Instead of making gifts of cash, the gifting of appreciated growth investments makes sense because it may reduce risk in your portfolio while also providing a potential tax deduction.

When you have stocks that are worth less than you paid for them it is wiser to sell them first and claim a capital loss.

The Church accepts donations of publicly traded stock, bonds or mutual fund shares. If you are considering this type of donation, please contact plannedgiving@ucg.org. He can answer questions and provide you the name of the Church’s brokerage firm to execute the gift transfer. UN