Donating Appreciated Stock Offers Tax Advantages

Not-for-Profit Donations and Tax Savings

By Mike Klein, CPA, Ciuni & Panichi, Inc. Partner-In-Charge of the Not-for-Profit Group

mbkThe best scenario for not-for-profit organizations is when they have the revenue they need to achieve their mission, their benefactors’ pain is eased, and their donors enjoy the rewards of contributing as well as a nice tax deduction. It’s important for donors to know that donating appreciated stock can help fulfill all three needs. And best of all for donors, a gift from his or her portfolio is not only possible, it can boost the tax benefits of the charitable gift.

No pain from gains
Inform your potential and current donors that charitable organizations are more than happy to receive appreciated stock as a gift. Depending on the not-for-profit’s policy, it may maintain a stock portfolio or sell donated stock.

Contributing appreciated stock entitles donors to a tax deduction equal to the securities’ fair market value — just as if the stock was sold and the cash was contributed. The difference is neither the donor nor the charity receiving the stock will owe capital gains tax on the appreciation. Avoiding capital gains tax and also taking a tax deduction is a double benefit for donors.

The key word here is “appreciated.” The strategy doesn’t work with stock that’s declined in value. In this case it’s better to sell securities that have taken a loss and donate the proceeds. This way also allows for a double deduction for donors: one for the capital loss and one for the charitable donation.

Inevitable restrictions
Inevitably, there are restrictions on deductions for donating appreciated stock. Annually donors may deduct appreciated stock contributions to public charities only up to 30 percent of their adjusted gross income (AGI). For donations to nonoperating private foundations, the limit is 20 percent of AGI. Any excess can be carried forward up to five years.

So, for example, if you contribute $50,000 of appreciated stock to a public charity and have an AGI of $100,000, you can deduct just $30,000 this year. You can carry forward the unused $20,000 to next year. Whatever amount (if any) you can’t use next year can be carried forward until used up or you hit the five-year mark, whichever occurs first.

Moreover, donors must own the security for at least one year to deduct the fair market value. Otherwise, the deduction is limited to the tax basis (generally what was paid for the stock). Also, the charity must be a 501(c)(3) organization.

Last, these rules apply only to appreciated stock. If you donate a different form of appreciated property, such as artwork or jewelry, different requirements apply.

Intriguing option
A donation of appreciated stock is one of many strategies to encourage your donors to support your mission.

Need help? Contact Mike Klein, CPA, Ciuni & Panichi, Inc. Partner-in-Charge of the Not-for-Profit Group at 216-831-7171 or  mklein@cp-advisors.com. In addition to audit and accounting services, the Not-for-Profit Consulting Group offers a complete menu of advisory services including:  Resource Development, 990 Preparation, Strategic Management, Executive Coaching and Marketing.

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