Why donate appreciated assets instead of liquid cash? The advantage is that you benefit from the full amount of the asset in tax deductions (that you were planning on giving anyway) and you do not have to pay taxes on the capital gains. Furthermore, when the organization (provided it is a qualified 501(c)3 public charity) sells the stock, it is also exempt from paying the capital gains taxes. That is a win-win!
For example, let’s take someone making a salary of $50,000 that usually donates 10% of their annual income. In a typical year, this person would donate $5,000. If this person had an appreciated asset such as stock, this donor could donate $5,000 in stock instead. If the stock was purchased at $2,500 and then appreciated 100%, this gain of $2,500 would be taxable at 20% (generally). 20% of $2,500 is $500. In donating the appreciated asset (stock) instead of cash, the donor still benefits from the tax deduction of $5,000.
However, by donating and not selling the appreciated stock, the donor also benefits by an additional $500 by avoiding the capital gains tax. Not a bad savings for a relatively small change in the way the donor made his/her donation.
Of course, increasing your giving is always appreciated, but at the end of the day, this minor tweak provides you with more disposable income to utilize at your discretion.
Happy saving and giving!
Did you know that Donor-advised funds can be a helpful giving tool? Keep checking our blog for more information!