Consider Donating to Certified Stocks and Mutual Funds – Ukiah Daily Journal | Jobs Vox


One way to reduce your tax bill this year is to donate appreciated stock to a charity of your choice and make a cash donation. While this is a tough challenge in today’s market, it is still one of the best tax planning strategies available to you. This section of the tax code provides tax benefits in two ways:

1. High discount. Your charitable gift deduction is the higher fair market value of the stock appreciated on the date of your gift, not what you originally paid for it.

2. No capital gains tax. You don’t have to pay tax on the profit after you sell the shares. As long as the investment is held for more than one year, you can avoid paying long-term capital gains tax on the value of your shares.

A sweet example

Winnie and Christopher each own 100 shares of Honey Inc. stock that they purchased three years ago for $1,000. Today, the stock is worth $5,000 (after a small dip in the down market). Winnie sold his shares and donated the proceeds to “Save the Bees”, while Christopher donated his shares directly to “Honey Overeaters: Finding a Cure”. 15 percent long-term capital gains tax rate*, 25 percent income tax bracket and no other restrictions:

Not only does Christopher see an additional $750 in federal tax benefits for donating appreciated stock, but Honey Overeaters has an additional $600 to use for their charitable programs.

Other benefits

The Alternative Minimum Tax (AMT) does not affect charitable deductions as it does with other deductions. Remember, this approach will give more money to your chosen charity. By donating cash or check, those extra funds are paid as federal taxes instead.

This tax advantage may be worth more if our honey lovers have a lot of income. The maximum long-term capital gains tax rate can be as high as 20%, and it is also hit with a net investment income tax of 3.8%.

This benefit isn’t just for the wealthy, it’s for anyone who itemizes deductions with qualifying assets.

Things to consider

Note that this benefit is only available on eligible investments (especially stocks and mutual funds) held for more than one year.

Beware that investments such as collectibles and stocks are not eligible.

Consider this a replacement for your regular contributions to qualified organizations.

Contact your target charity. They often have a preferred broker who can help you receive the donation in a qualified manner.

Contribution limits as a percentage of adjusted gross income may apply. Excess contributions can often be carried forward as deductions for up to five years.

How you conduct the transaction is very important. It must be clear to the IRS that the investment was made directly to the charity.

If you think this opportunity is right for you, please contact a trusted advisor to make sure your contributions are handled correctly.

* If you have qualified investment income, the total tax rate on this type of investment can be 23.8 percent (20 percent capital gains tax and 3.8 percent net investment income tax).

James Angell is a certified public accountant based in Wilts. His office is at 461 S. Main St. Available at and can be reached at 707-459-4205.

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