Consider gifting long-term appreciated stock to qualified charities as a tax-efficient giving strategy. By donating assets with long-term capital gains, such as stocks, mutual funds, or bonds, rather than cash, you can receive a tax deduction, eliminate an unrealized gain in your portfolio, and potentially lower future taxes. For donations over $1,000, this strategy can be beneficial, particularly for individuals in higher tax brackets.
For example, if you own Apple stock with an unrealized long-term gain and want to donate $10,000 to a charity, you can gift the stock instead of cash. By gifting the stock, you can avoid selling it and triggering capital gains taxes, while still receiving a tax deduction for the full value of the stock on the day of the gift. Additionally, repurchasing the stock after gifting it can establish a new cost basis, potentially reducing future taxes or creating a tax deduction if the stock’s value decreases.
While this strategy may not allow for exact dollar amount donations, as the value of the stock fluctuates, it can still be a tax-efficient way to support charities. The tax benefits are maximized for those in higher tax brackets, as long-term capital gains are taxed at a maximum federal rate of 23.8%, not including state taxes. Donors should be aware of the 30% limit on deductions for contributions to public charities and donor advised funds, with any excess amounts being carried forward for up to five years.
Transferring appreciated stock to charities requires coordinating with the charity’s brokerage account and may take some time, especially for smaller organizations. However, the benefits of this strategy make it worth considering, as both the donor and the charity can benefit from the donation. By gifting appreciated assets, donors can support causes they care about while also maximizing their tax advantages and potentially reducing future tax liabilities.
Ultimately, gifting long-term appreciated stock to qualified charities can be a win-win for both donors and charities. Donors can receive tax deductions, eliminate capital gains in their portfolio, and potentially lower future taxes by repurchasing the stock with a new cost basis. Charities receive the full value of the gifted position and can liquidate it tax-free. This strategy should be considered by investors who are looking for tax-efficient ways to support charitable causes while also managing their investment portfolios effectively.
