Steve Coker, CFP
Giving Appreciated Stock
Updated: Dec 11, 2020
As we discussed last week, there is tremendous uncertainty about future tax changes, making 2020 year-end tax planning extremely difficult. If the Republicans keep the Senate majority, which is contingent upon winning at least one of the two Georgia Senate seats under runoff, then there could be more gridlock in Washington and tax changes could be limited. However, if the Democrats win a Senate majority, they could very well make sweeping tax changes in the coming year.
In this type of environment, I recommended sticking to solid strategies that work in almost every situation. One of those strategies is gifting appreciated stock. Giving appreciated stock has many advantages compared to simply giving cash. Not only will you be allowed to deduct the appreciated value of the stock, you also eliminate capital gains on the donated stock, giving you a double benefit compared to giving cash. For example, if you give $10,000 worth of stock with a basis of $5,000 you could receive a tax deduction for $10,000 AND save an estimated $1,250 in taxes (assuming a combined federal and state tax rate of 25%) that you would have paid when you sell the stock. If you still like your stock, you can use the cash that you would have donated to repurchase the shares, resetting your cost basis for tax purposes and still saving the taxes. In fact, giving your winners, and selling your losers can be an excellent tax strategy, especially for those in the higher brackets. Sometimes it can be difficult to quickly decide where to gift appreciated stock before year end. If you do not know where to give, or would like to give to multiple charities, then consider gifting to a Donor Advised Fund or DAF. A DAF allows you to gift your appreciated stock into a fund this year, receive a current year deduction, and then send checks to the charities of your choice in later years.
Of course, there are limits on gifting appreciated stock, so it is best to talk with your advisor or CPA to make sure the strategy makes sense for you. The rules can be complicated but here are a few basics that you should know:
You can deduct appreciated capital gain assets (such as appreciated stock) up to 30% of your Adjusted Gross Income. This is lower than the cash charitable contribution limit, which is typically 60% of Adjusted Gross Income, but has been increased to 100% of Adjusted Gross Income for 2020 only as part of the CARES act.
You must itemize deductions for the charitable contribution to matter. The standard deduction has been increased to 24,800 for married couples filing jointly for 2020, and $12,400 for singles. This means that your total itemized deductions must exceed these thresholds before the charitable deduction will reduce your taxes. You will still avoid the taxes you would have paid on selling the stock, but the charitable deduction may not help.
You will need to get a receipt and have clear documentation of the value of the stock that you donate. Not all charities are sophisticated enough to handle these types of transactions. If your charity does not know what to do with stock, consider gifting the stock to a Donor Advised Fund. You’ll still get the benefits of donating the stock, and the fund can send cash to your charity.
So, what is the bottom line? If you are writing checks to your church or favorite charity and you have appreciated stock, give us a call. The strategy could save you money on your taxes, allowing you to give more and make a bigger impact.