Donating Appreciated Stock: The Powerful Potential Tax Savings

When it comes to giving back and supporting the causes we care about, many of us turn to making charitable donations. However, did you know that how you donate can have a significant impact on your overall financial picture? In this article, we'll explore the advantages of donating appreciated stock over cash, uncovering the potential for increased tax savings and smarter financial planning.

The Basics of Charitable Giving:

Before looking at the benefits of donating appreciated stock, let's understand the basics of charitable giving. When you make a cash donation to a qualified charitable organization, you are eligible for a tax deduction equal to the amount donated. This deduction helps lower your taxable income if you “itemize” your taxes.  Most people do not currently itemize their tax deductions so planning is pivotal for charitable people.

Now, let's consider an alternative to donating only cash:

The Power of Appreciated Stock Donations:

1.   Avoiding Capital Gains: One of the primary advantages of donating appreciated stock is the ability to legally sidestep capital gains taxes. If you've made money on your investments, selling those stocks could trigger capital gains taxes. However, by donating the appreciated stock directly to a charity, you can completely avoid this tax liability. This means more money goes to the charity and less to the taxman.

2.   Improving Deductions: Not only do you avoid capital gains taxes, but you also get a deduction for the full market value of the donated stock. For instance, if you make a $10,000 appreciated stock donation, you receive a deduction for the entire $10,000, even if your initial investment was less. This can result in a more significant tax benefit compared to a cash donation of the same amount.

3.   Strategic Use of Cash: By opting to donate appreciated stock instead of cash, you retain the cash you would have donated. This opens up opportunities for strategic financial moves. For example, you can use the retained cash to repurchase the same stock at a higher cost basis.  This not only allows you to maintain your investment portfolio but also sets you up for potential tax benefits in the future.

4.   Lower Capital Gains and Tax Loss Harvesting: The increased cost basis from repurchasing the stock with retained cash can lead to lower capital gains when you eventually sell the stock. Additionally, having the option to strategically sell other investments at a loss – a technique known as tax loss harvesting – can further optimize your tax situation. This flexibility provides a valuable tool for managing your overall tax liability.

5.   Accumulating Massive Savings: Over time, the compounding effects of avoiding capital gains, maximizing deductions, and strategically managing your investment portfolio can result in significant added savings. These savings can be redirected towards your financial goals, such as retirement planning, purchasing a home, or supporting additional charitable causes.

In the realm of charitable giving and financial planning, the decision to donate appreciated stock rather than cash can lead to a multitude of benefits. From avoiding capital gains taxes to maximizing deductions and strategically managing your investment portfolio, the impact on your overall financial well-being can be substantial.

As you navigate your financial journey, consider consulting with a financial advisor to tailor these strategies to your specific circumstances.  There are many nuances you should consider before implementing a specific strategy.  Make every donation with a tax plan in mind to help you gift more or keep some of the tax savings.

 Disclosures:

Roth Disclosure: The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

Authorship: Michael with help of AI

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy. AI (artificial Intelligence) sourced articles may be prone to error, due to the vast information they assemble from the internet. Always confirm any questions or concerns you may have with an experienced professional. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual