Tax Benefits Of Donating Stock To The Foundation
As a donor, you may not be aware of a potential tax benefit you can receive when giving appreciated stock - rather than just cash - to a 501(c)(3) not-for-profit organization such as the Equipment Leasing & Finance Foundation. We recommend you consult your tax adviser before making a stock donation to the Foundation.
For instance, let's say you are interested in donating $10,000 in cash to the Foundation. In return, you will receive a charitable deduction based on you tax bracket.
Let's further assume you, the contributor sold $10,000 worth of stock, which was purchased one or more years ago for $2,000. Then, after the sale, you pulled out your checkbook and wrote a check for $10,000 to the Foundation.
The result for the Foundation is the same, but not for you, the donor who sold the stock to make the donation. You are going to have to report a capital gain of $8,000 and generally pay a federal capital gain tax of 20 percent or $1,600, as well as state tax.
On the other hand, if you give the stock directly to the Foundation, the Foundation will receive the same $10,000, but you, the donor would be exempt from paying any capital gain tax and receive an income tax deduction for stock donations.
Of course, there are a few caveats:
- The stock must have been owned by the shareholder for at least one year and a day to qualify for long-term capital gains rates. If donors give shares held one year or less, the charitable deduction will be limited to what they originally paid for the shares, rather than their appreciated value.
- Donors should also ask their tax advisers about large charitable donations - both of stock and of cash - and how those deductions may be limited by their Adjusted Gross Income. For example, someone with an AGI of $80,000 in a given year may only take a tax deduction up to 50 percent of that figure, or $40,000.
- If that same individual wants to make a $50,000 cash contribution to a not-for-profit, he may certainly do so. However, only $40,000 is deductible as a charitable contribution, while the remaining $10,000 is carried forward to future tax years.
- For those gifting stock, the maximum deductible value may not exceed 30 percent of the donor's AGI. If the value, nevertheless, does exceed that 30 percent limit, the excess can also be carried forward to a future year.