If you are thinking about making a donation, you might want to consider making a gift of appreciated stock (or mutual fund shares) rather than a cash donation. A gift of appreciated property often provides increased tax benefits, along with the satisfaction of contributing to a cause you believe can make a difference.

Tax Benefits
Charitable contributions of appreciated securities provide two potential income-tax advantages.

  • The first is a charitable deduction -- generally for the fair market value of the securities at the time of the contribution, subject to certain tax law limits.
  • The second benefit is that you are not taxed on the capital gain that would result if you sold the property.

For example, let's say you own publicly traded stock currently worth $20,000. You bought the stock over a year ago for $15,000. If you sell the stock, you will have long-term capital gain income of $5,000 which will be taxed. However, if you donate the stock to BITSAA, a non-profit organization, you may claim a $20,000 charitable contribution deduction and avoid paying capital gains tax on the $5,000 of appreciation in the stock. BITSAA will be glad to receive the stock and can sell it immediately for $20,000, generally with no capital gains consequences because of the her tax-exempt status.

To gain these benefits, the stock must be long-term capital gain property - stock you've owned for more than one year or stock you inherited. If the stock would generate a short-term capital gain if sold, your charitable deduction is limited to your cost basis rather than the stock's fair market value. Also of importance is the type of charity to which the gift is made. While a gift of appreciated stock to a public charity generally allows the donor to take a deduction for fair market value, a similar gift to a private foundation may result in a charitable deduction that is limited to your cost basis.

(adapted from a financial website, psgplanning.com)