A Winning Charitable Giving Strategy from HCR Wealth Advisors
This is the time of year when many wealthier Americans think most about charitable giving. As part of their gift-giving strategy, many will cash out stock from their portfolios in order to support favorite causes and earn tax benefits in the process.
HCR Wealth Advisors says that there might be a better way. Talk it over with a tax expert before cashing in those securities. It can often be in a donor’s best interest — and that of the recipient organization as well — to donate the stock itself rather than the cash proceeds. Here’s why, according to the firm.
When you liquidate a stock, you are likely to pay as much as 20 percent in capital gains and take another 3.8 percent hit in Medicare taxes. You could also be responsible for additional taxation on the cash amount if you live where capital gains are further docked at the state level.
When you donate the stock itself, rather than the sale proceeds, there is no capital gains tax. For illustrative purposes, HCR Wealth Advisors compares a $50,000 cash donation based on a sale of securities with a donation of the same amount in the stock itself.
In this example, the cash donation is first hit with a $4,760 capital gains tax, for a net donation, after taxation, of $45,240. The organization that accepted the securities donation, on the other hand, received the full $50,000 current market value of the shares.
So, in this example, the non-profit organization was able to receive a “bonus” amount of $4,760 in accepting the securities. But there was also a financial benefit to the donor, in that the securities donation removes the capital gains tax liability from the individual’s portfolio.
Is a stock vs. cash donation strategy right for you? It just might be but discuss it first with your tax advisors.
HCR Wealth Advisors is a registered investment advisory firm in the service of high net worth individuals. The firm advises on retirement, inheritances, wealth-building, business start-up, life transitions, charitable giving and other personal finance issues.
This article is provided for informational purposes only and should not be interpreted as investment advice. HCR Wealth Advisors is not affiliated with this website.