As 2017 begins to conclude and we come into the holiday season, the topic of year end giving comes up from both the clients I work with as a CPA and the nonprofits I am involved with in the Valley.
For some individuals, there is a way to make a meaningful difference without writing a check, which is often a win-win scenario.
Giving appreciated stock has a compounding effect that makes the most of your giving capacity and tax benefits, while also supporting a nonprofit that has a special place in your heart.
A notable double incentive offered by the IRS exists when donors use appreciated securities such as publicly traded stock, bonds, or mutual funds to make a gift.
Be careful, though. Do not sell the securities first. Even though the intention is to give the proceeds as a gift, the IRS will impose capital gains tax on the sale, wiping out the benefits of this arrangement.
It’s a simple process.
You have your broker transfer appreciated securities that you have owned for more than one year to your favorite charitable organization. Your securities are then sold by the nonprofit. The nonprofit uses the proceeds to further its mission.
It’s important to note that while not all nonprofits can accept gifts of stock and appreciated securities, community foundations like the Valley Community Foundation are great resources that can help facilitate non-standard gifts like this.
When you transfer securities, you receive an immediate income tax deduction for the fair market value of the securities on the date of transfer, even if you originally paid much less for them. You pay no capital gains tax on the transfer when the shares are sold by the charity.
Say, for example, you purchased stock years ago for $200 that has appreciated to a fair market value of $1,000. If you give a gift of stock to your favorite nonprofit, you would be able to claim a tax deduction for the full $1,000 that your stock is worth today.
Additionally, you would not be liable for the tax on the $800 capital gains with your gift of stock. By using stock instead of cash in this scenario, you would deliver $1,000 to a nonprofit while securing a tax deduction in that full amount, at an actual “cost” of $200.
With so many ways to support your favorite nonprofit before year end, this is truly a strategic way to buy low and give high. Wishing you the warmth and joy that this beautiful season always brings and a New Year full of happiness and prosperity.
The writer is a CPA and partner with the Shelton accounting firm Apicella, Testa & Company, P.C. He resides in Seymour.
Letters do not necessarily reflect the views of The Valley Indy.