Quizmaster, Doug Hutchinson, presents his quiz for the month. Here, Doug explores donating appreciated stock versus selling the stock and donating the cash.
Consider this scenario:
Your friend Carrie would like to make a donation to her favorite charity and she is debating whether to sell a stock holding and donate the proceeds of the sale or to donate the stock itself to charity.
Carrie bought 250 shares of ticker ABC at a cost of $50 per share over a year ago. Ticker ABC is now trading at $75 per share.
Assume Carrie faces an income tax rate of 25% and a long term capital gains tax rate of 15%.
Is Carrie better off donating the stock to the charity or selling the stock and donating the proceeds of the sale to the charity?
Solution:
In both scenarios, it is likely that Carrie will be able to take an income tax deduction in the amount of the full market value of the securities. However, if Carrie sells the stock first and then donates the cash to charity she will be subject to capital gains taxes. By donating the stock to charity she won’t be subject to capital gains taxes for that stock.
If she sells the stock and donates cash:
- The fair market value of the securities is 250 shares x $75 = $18,750
- She will have tax savings of $18,750 x 25% = $4,687.50
- She will owe capital gains taxes of 250 shares x $25 x 15% = $937.50
Her net tax savings will be $4,687.50 - $937.50 = $3,750
If she donates the appreciated stock:
- The fair market value of the securities is 250 shares x $75 = $18,750
She will have tax savings of $18,750 x 25% = $4,687.50
Carrie will have a greater tax savings by donating the appreciated stock. She will reduce her taxes by an extra $937.50 ($4,687.50 - $3,750 = $937.50). Carrie should consider consulting a tax professional and a financial planning professional to help her meet her unique financial goals.
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This quiz is intended for informational and illustrative purposes only. This quiz is intended for informational and illustrative purposes only. This material is not intended to be relied on as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information presented is general information that does not take into account your individual circumstances, financial situation or needs, nor does it present a personalized recommendation to you. The information and opinions contained in this material are derived from sources deemed reliable, are not all-inclusive and are not guaranteed as to accuracy.
The information presented by WrapManager, Inc. is general information only and does not represent tax or legal advice, either expressed or implied. You are encouraged to seek professional tax advice for income tax questions and assistance. WrapManager, Inc. does not advise on any income tax requirements or issues.
