YOUR BUSINESS AUTHORITY
Springfield, MO
Like many investors, you may own shares of stock – or other assets like mutual funds – that have appreciated in value given the generally favorable environment for the markets in recent years. If the stock is held in a taxable account, it means that a decision to sell shares at some point in the future may result in a taxable gain.
One option to consider is gifting those appreciated shares to qualified charities. This may provide a tax benefit for you, and it could result in a larger gift for the receiving organization, as well.
Weighing your options
Donating stock rather than cash makes the most sense if it has been held in a taxable account for longer than a year and it has appreciated in value. It also may be best if you were already considering selling that stock position.
Consider a situation where an individual wants to take a stock valued at $2,000 and use it to fund a donation to a qualified charity. In this example, we’ll assume the stock was purchased 10 years ago for $1,000 and is now valued at $2,000. The donor can proceed in one of two ways:
Advantages of donating stock
In the latter example, it is clear there are several advantages to donating stock directly to the charity rather than liquidating the shares first and donating the proceeds in cash:
This creates a win-win situation, both for you as the donor as well as the charity. The organization can turn the stock received into cash immediately by selling it or choose to hold onto the stock to capitalize on potential future gains. That means the value of your gift could be enhanced.
This strategy works specifically for appreciated stock that is held for at least 12 months, qualifying it for long-term capital gains treatment. If the stock was held for less than 12 months, tax laws only allow you to deduct the cost-basis value of the stock that was donated. If the stock lost value, it is more advantageous to sell the shares first and then make the donation to charity. You may be able to utilize the capital loss on your tax return to offset other gains or a portion of your income.
Before you decide to donate stock to charity, check with the organization in advance to make sure they are able to accept such a gift. Also be sure to consult with your tax adviser to have a clear understanding of the tax ramifications of your donation plan.
Paula Dougherty is a certified financial planner and private wealth adviser with Achieve Private Wealth, Ameriprise Financial Services LLC in Springfield. She can be reached at paula.j.dougherty@ampf.com.
Helping people is the foremost purpose in business for Angela Stephens. The idea for Re-Focus the Creative Office was born to help her son, Drake Stephens, who had started struggling in school in fifth grade.
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