Before you make a donation to Akron Children’s this year, you might want to consider looking through your stock portfolio. During the past 12 months, the S&P 500 has set more record highs in more than a decade, and the Dow Jones industrial average hit the 16,000 mark for the first time. As a result, many people have portfolios with greatly appreciated securities which carry with them a large amount of unrealized gain that may be subject to capital gains taxes if sold.
The strategic gifting of these appreciated securities to Akron Children’s will enable you to make a beneficial gift while at the same time, achieving two tax benefits: avoiding capital gains taxes and receiving a charitable deduction on your federal income tax returns.
These tax benefits come from the fact that the deduction for a donation of property to charity is equal to the property's current fair market value, rather than the basis of the property. And when the donated property is an investment, the donor does not have to recognize the capital gain. These rules create a "double play" of tax benefits: a charitable deduction AND avoiding tax on the unrealized capital gains of the donated property.
For example, let's say you bought stock for $10,000 a number of years ago and today, thanks to market gains, it is now worth $20,000 – an unrealized capital gain of $10,000.
If you sold the $20,000 stock instead of donating it, you would pay capital gains tax on the $10,000 gain in value. The tax rate for long-term capital gains is 15 percent. Therefore, the tax savings for donating rather than selling the stock would be $1,500.
Additionally, you can claim a deduction of the market value of the donated shares -- the full $20,000 -- as a charitable donation deduction. If you are in the 25 percent federal tax bracket, this could generate another $5,000 (20,000 x 25%) in tax savings. This brings your total tax savings to $6,500. If you are in a higher tax bracket, your donation deduction will be even more. Also consider this: you are giving a gift that is two times what it originally cost you.
Donating appreciated stock is a means to give that benefits everyone. If you have questions, talk to your financial advisor or contact Maureen Katanic, senior director of planned giving, at 330-543-8343.
