October 23, 2013
Over the years, the IRS has closed most so-called "tax loopholes." There is one type of charitable donation that allows you to capture a double benefit. Donating appreciated shares of a stock or fund to a qualified charitable organization will give you two different tax breaks. One, you can deduct the current value of the stock as a charitable donation. Two, you avoid paying capital gains tax on your gain.
For example; you bought 100 shares of XYZ for $10,000 five years ago and it is now worth $20,000, donating the 100 shares would give you a $20,000 write-off and you avoid paying tax on the $10,000 gain. This really is a double-dip deduction.
There are two caveats that I want to mention. First, make sure you have owned the stock over one year. The rules are very different if you donate a stock with a short-term gain. In the above example, if you had only owned the stock for 11 months and donated $20,000 worth of stock your deduction would be limited to your cost basis or $10,000. You would lose half of your deduction.
The second caveat is that you should not do this with depreciated stock. If your stock has lost value since you purchased it, you should first sell it to capture the tax loss and then donate the proceeds to your charity. If you donate the stock in this case, you will lose the capital loss write-off.
As always, consult your advisor before making this type of financial decision.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).
IRS CIRCULAR 230 NOTICE:
As required by U.S. Treasury Regulations, please be advised that any written tax advice contained in this communication was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.