By Terry Mitchell, CPA
Charitable giving is a gift that rewards both the giver and the receiver. With the top federal ordinary income tax rate at 39.6% for married couples filing jointly with taxable income above $457,600 and for single filers with taxable income above $406,750, charitable giving provides even a greater tax benefit. The capital gains tax rate for taxpayers in the 39.6% bracket is 20%.
Cash donations are the most common method of charitable giving, but, in certain circumstances, cash may not be the most tax-efficient way to give. Contributing stocks, bonds or mutual funds (noncash gifts) that have appreciated in value provide two advantages over the traditional cash gift. For noncash gifts of securities, the fair market value may be claimed as an itemized deduction up to 30% of the donor’s AGI and the capital gains tax on the appreciation is not owed by the donor.
As an example, if a stock is valued at $50,000 and the taxpayer paid $30,000 for the stock more than 1 year ago, the gain of $20,000 on the sale of the stock would be taxed at 20% or $$4,000. Thus the taxpayer would have $46,000 remaining to give to charity and to claim as a charitable deduction. However, if the taxpayer gave the stock to the charity, the deduction would be the fair market value of $50,000.
Contact your tax adviser or portfolio manager to assist you in determining if there are securities in your portfolio that would provide the benefits of noncash charitable giving. If not, then there is always cash.
Contact us if you would like to discuss other donation options. Thank you for your continued support.