| Gifts Before Year-End: The Stock Answer | ||
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Over the years, as the stock market has increased, many Principia donors have chosen to give appreciated securities instead of cash for their gifts to Principia. This is especially true at the end of a tax year. The following example and illustration point out the special benefits of giving appreciated securities. Cash Gift Tom Brown wants to make a $10,000 cash gift to Principia before the end of the year, not only to support the educational activities of the school, but also to take advantage of a charitable deduction on his 2007 taxes. Assuming Tom submits an itemized tax return, falls in the 28-percent tax bracket, and is able to use all of his charitable deduction, he can look forward to saving $2,800 in taxes. To put it another way, his gift to Principia will “cost” him only $7,200. Gift of Stock Mary Smith also wants to make a gift to Principia before year-end. But instead of writing a check, she calls her financial advisor for an update on her portfolio. She learns that one of her publicly traded stocks has appreciated significantly from when she bought it five years ago for $10 a share. It is now trading at $20. And since she owns 500 shares, she has an appreciated asset worth $10,000 — twice what she paid for it. Mary has a decision to make. Should she tell her advisor to sell the stock and send her a check in the mail (which she would then use to make a gift to Principia), or should she have the advisor transfer the stock to Principia’s account? In other words, should she give cash or stock? Mary chose the stock answer. Consider the wisdom of Mary Smith. Instead of selling the stock, paying the required 15 percent capital gains tax on the appreciation, and giving what’s left to Principia, she makes a direct gift of the stock. |
In so doing she bypasses the capital gains entirely. She knows that Principia is a qualified charitable organization and that we can sell the stock without any tax consequences. A Closer Look Let’s take an even closer look. Mary paid $5,000 for the stock. However, she receives an income tax charitable deduction for a gift of $10,000. And since, like Tom, she is in the 28-percent income tax bracket, she will save $2,800 in taxes — assuming, of course, she is able to use all of the deduction. In short, it costs Tom $7,200 to make a gift of $10,000
($10,000 less $2,800 in tax savings), while it costs Mary
only $6,450 ($10,000 less $2,800 income tax savings
and $750 capital gains tax savings). No matter what
tax bracket you’re in, making gifts with appreciated
securities (stocks, bonds, mutual fund shares) can
make great sense. |
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