A stock portfolio is often among the most valuable assets you own but, as stock prices increase, so do the taxes you owe on the long-term capital gain. With careful planning, you can reduce federal capital gains tax while supporting the causes that you care about. Donating appreciated stock can offer even more tax benefits than writing a cheque.
When you donate publicly traded stock you’ve owned for more than one year to a qualified charitable organization such as the JCFC, you enjoy two major tax benefits:
- You will be exempt from paying capital gains taxes on any increase in value—taxes you would pay if you had otherwise sold the securities.
- You are entitled to a federal income tax deduction based on the current fair market value of the securities, regardless of their original cost.
Normally, when you sell listed securities, tax must be paid on 50% of any capital gain (the increase in value since you acquired the securities). However, when you donate these same securities to a charitable organization like the JCFC, you can save 100% of the capital gains tax.
- In order to derive the tax benefits, you must transfer the securities to the charity, not sell them first.
- Your charitable receipt will be valued based on the closing price on the day when the shares are legally transferred to an account at our brokerage firm.
- You can carry forward the unused tax credit for the donation amount, for up to five years.
- The amount credited to your fund will be based on the net proceeds realized from the sale of the securities, less selling commission.
- When your tax bill arrives, there will be no capital gains tax to pay!
David currently owns stock shares that he purchased for $10,000. He is considering selling the stock, now worth $20,000.
- If David sells the stock for $20,000 and makes a cash donation of that amount, he must pay tax on 50% of the $10,000 capital gain. Assuming a tax rate of 39%, he will pay $1950 in capital gains taxes.
- If instead of cash, he donates his stock shares worth $20,000 to the JCFC he will not have to pay tax on the capital gain.
In either of these scenarios, David will receive a charitable donation receipt for $20,000 that can result in a tax credit of several thousand dollars.
This tax benefit is also available, with certain restrictions, to individuals exercising employee stock options.