Have you ever wondered what’s the financial benefit in donating stocks to charity? Let’s take the epic year 2020 into consideration. The year of the life altering, unforgettable COVID-19 pandemic. As the virus spread across the globe, the stock market fell. If you were among the lucky souls who had some spare change lying around and dropped $9,600 on 100 shares of FDX (FedEx Corp) in April 2020 you’re probably doing a happy dance right now. In just eight short months, your investment of $9,600 has grown 198% to a sizable $28,693. Alternatively, let’s say 5-years ago you had a crystal ball and purchased 20 shares of AMZN (Amazon) in 2015 at a per share price of $589.00. Today you’re a high-roller when you consider in just 5-years Amazon’s per share price has skyrocketed to $3,169. Put another way, your $11,780 investment is now worth more $63,380. What do these investment successes have to do with you? How can you celebrate the growth and limit your tax liability? Here are five reasons you should consider donating stock to National Foundation for Transplants prior to December 31st. Please note, the following information is for education only. You should consult your financial advisor before making any financial decision.
Reasons to Donate Stock
You can donate more
By donating stock that has appreciated for more than a year, you are actually giving 20 percent more than if you sold the stock and then made a cash donation. The reason is simple: avoiding capital gains taxes. The maximum federal capital gains tax rate is 20 percent on long-term holdings. Given that the Dow Jones Industrial Average rose from about 18,000 at the end of March 2015 to about 22,000 at the end of March 2020, you are likely to realize a taxable profit on the sale of assets you purchased in the past five years. But, if you donate the stock directly to a charity, there’s no capital gains tax to pay. Plus, you are still eligible to deduct the full fair-market value of the asset you donated from your income taxes, up to the overall amount allowed by the IRS.
You can potentially reduce future capital gains tax
Many investors have stocks that they love and want to hold for the long term. Any appreciation of that stock’s value confirms your belief in it, but it can also set the stage for substantial gains when you sell. So consider donating some of your appreciated shares and then buying new shares to reset your cost basis at the current, higher price. This will reduce your future capital gains tax exposure if the stock continues to grow in value.
It’s an opportunity to do a portfolio health check
Much like with a good diet and regular exercise, your health can get out of balance. So, too, can your stock portfolio. If a review of your investments’ gains and losses shows that it’s time to rebalance your portfolio to maximize its performance and optimize for risk, donating stock can give your portfolio the health check it needs. Implementing a donation strategy puts your capital gains to work funding your charitable interests. Talk to your advisor about which assets to put to a better use.
Ease of giving without the headache
Some people may not be interested in donating stock because they think it will require a lot of paperwork and phone calls, or that their chosen charity may not be able to easily accept a stock donation. But a donor-advised fund, like the Giving Account at Fidelity Charitable, a public charity, takes the hassle out of donating stock.
A donor-advised fund is like a charitable investment account which can be used exclusively to support charities you care about. Instead of donating multiple blocks of stock to multiple charities, you make one donation which is used to fund your Giving Account. There is one form to file with your tax return instead of many.
If you’re not sure which charity should receive your appreciated stock, you need not decide now. Donating stock to a donor-advised fund allows you to take a deduction for the current tax year and then support as many charities as you would like over time, by recommending grants on the timetable that makes the most sense for you.
To be eligible for a charitable deduction for a tax year, donations of stock must be received by no later than December 31. Because different assets take different amounts of time to be transferred, you should initiate your transactions as soon as possible.
CARES Act Relief could help off-set a high-income year
A charitable gift that combines cash and long-term appreciated securities may create a larger deduction than contributing securities alone. When you donate cash, generally you can give up to 60 percent of your adjusted gross income (AGI) and deduct the contribution in the current year. In 2020, though, Congress passed the Coronavirus Aid, Relief and Economic (CARES) Act in response to the COVID-19 pandemic. Under the bill, you can deduct cash contributions to qualifying organizations up to 100 percent of your AGI in 20201—a unique opportunity to benefit charities immediately while significantly reducing a high tax bill.
“If you’re having a high-income year, it is the time to make sure you’ve fully taken advantage of all possible deductions,” said Tony Oommen, vice president and charitable planning consultant at Fidelity Charitable. “For the charitably inclined, maxing out your deductions is a strategy that could make a lot of sense and is worth discussing with your tax advisor.”
Avoid the end-of-year scramble support National Foundation for Transplants today
To be eligible for a tax deduction in 2020, contributions must be completed by December 31. However, it can take longer to contribute some types of assets than others, so be sure to plan ahead and begin the process early. As COVID-19 continues to have far-reaching effects across the globe, now is the time to consider how to have the greatest impact through your charitable giving. It is more critical than ever to think generously and strategically about charitable giving in 2020—to maximize your tax benefit and your support of the great work provided by National Foundation for Transplants.
To learn how to make a stock donation to National Foundation for Transplants, contact sbrookshaw@transplants.org, or call (901) 680-5669.
(Source: Information contained in this article is courtesy of Fidelity Charitable.)