selling appreciated stock vs gifting it to charity

Question

Assume I have a stock that I purchased for $1000 and it now has a value of $5000, a potential long term capital gain of $4000. Assume also that I owe $20750 in total tax on an income of $80000 based on this calculator,

https://neuvoo.com/tax-calculator/?iam=&uet_calculate=calculate&salary=80000&from=year&region=Massachusetts

If I sold the stock and paid 15% capital gain tax on the 4k * 15% = 600. $3400 remain to help pay for the income tax for a total out of pocket expense around 20750-3400=17350.

If I gift the stock to charity I get a $5000 deduction from my gross 80k income for a taxable amount of 75K. The tax I then owe is ~19K.

Why would anyone then gift an appreciated stock to charity if it makes more sense to sell it and pay the capital gain tax??

Answer 1

This might be a strange notion but people donate to charity because they... want to donate to charity.

That's it.

Now, if you are going to donate to charity, donating an appreciated stock may be more tax-efficient than selling it and then donating the proceeds.

Answer 2

Sorry, your math is off. You seem to be stating you are in the 20% marginal federal rate. 15% cap gain.

$5000 stock donated to charity. You save $1000 on Fed tax due to the deduction.

$5000 stock sold. $4000 was gain and taxed $600. You now have $4400 to donate and save $880 in fed tax.

Another example, same tax rates apply, but donor is planning to gift $5K regardless.

You start out with $5000 in stock, sell it for a $4k LT gain. $800 due in tax. You send $5000 to the charity, getting a $1K tax refund, and send $800 to the IRS. You have $200 in hand. OR You donate the $5K in appreciated stock, and get $1K tax refund. You are $800 better off.

In effect, the stock donation saves you/charity the $800 cap gain tax that would go to the government.

The difference can ripple into other parts of your return, for those who in a number of phase-out situations, and the effect of what you save by donating the stock can be higher than this example.

Answer 3

If you give the stock to charity, you get a tax deduction based on the $5K value.

If you sell the stock and give the proceeds to charity, you get the same tax deduction, but you also have to pay capital gains tax on $4K.

Assuming you want to give $5K to charity and also want to dispose of the stock, the former method is clearly better, since you avoid the capital gains tax and everything else is the same.

I have some stock that I purchased using an ESOP many years ago; the price discounts resulted in significant unrealized gains. I've been using this stock as my source for large charitable contributions most years since they became qualified. I also do my contributions through a charitable gift fund -- the provider makes gifting stock or mutual funds very easy, especially if it's held in their brokerage (I have multiple lots, and can simply tell them on the website "Select $20K worth from the lots with the most gains").

Answer 4

Donate the appreciated stock if held > 1 year

Don't sell it for cash then donate the cash. If you do, you pay capital gains at 15%... if you donate the stock, the charity pays the capital gains (at their 0% rate).

However deduction only works if your existing deductions exceed the now-much-larger standard deduction of $12,000+.

Not donating is always better for the bottom-line than donating

Until tax rates exceed 100%, not donating is always better for your financial bottom-line.

Charitable giving is not for the greedy, yet all the great industrialists seem to come around to it. Go figure.

Answer 5

Also bear in mind whether the appreciated value has an accurate value.

This doesn't really apply to stocks but does apply to art and property. Say you bought a piece of art for $1 million several years ago. You now have someone value it at $5 million and donate it to charity. In reality it might not have sold for $5 million but because you gave it to charity no one can really confirm or deny it but you can still take the tax deduction on the $5 million.

So if you can have your asset valued higher than it's actually worth then donating to it directly to charity can have a net gain for yourself.

WSJ article on donating artwork

Answer 6

Look into a Charitable Remainder Trust (CRust) or Pooled Income Fund (PIF). I 'disposed' of a bunch of work stock that I had bought over a bunch of years and had changed stock symbols a couple of times making determining a cost-basis impossible (ok, overly time consuming). So rather than take a tax hit for the entire amount my adviser steered me to a PIF. I got the entire face-value of the donation as a tax deduction that year (which allowed me to convert a bunch of IRA to Roth), and I still get interest from 50% of the value for life. When I'm gone the donation goes fully to the charity.