Potential Tax Benefits
For philanthropically-minded investors, publicly traded appreciated stock can be among the most tax advantaged items to donate to charity. Contributing such assets may enable the donor to potentially eliminate capital gains tax liability on the sale of the assets, enjoy a current year tax deduction, if the donor itemizes, while allowing the charities they support to receive the most money possible.
To be eligible for a charitable deduction for a tax year, donations of stock need to be received by the end of the year. Because different assets take different amounts of time to be transferred, you should initiate your transactions as early as possible.
Stock Held for More Than One Year
Taxpayers who are considering current year charitable contributions and are also facing long-term capital gains taxes on appreciated stock that they have held for more than a year can realize a much more favorable income tax result and charitable impact by making a timely donation of the appreciated stock directly to charity. If a donor sells the stock first and then donates the cash proceeds to charity, the donor may be subject to capital gains taxes on the proceeds from the sale of the stock. But if a donor contributes appreciated stock held for more than one year directly to the Issaquah Food and Clothing Bank, the donor can potentially eliminate capital gains on the sale and deduct the fair market value (FMV) of the donation, if the donor itemizes.
Qualified Charitable Distribution
Another donation option to consider, if you’re over 72 years old, is a qualified charitable distribution (QCD) from your tax-deferred retirement account, such as a traditional IRA. A QCD is a tax-free distribution from a retirement account that can be donated directly to a qualified charity and be used to meet up to $100,000 of the required minimum distribution on your retirement account. There is no tax deduction for a QCD; however, you also don’t have to include that distribution into your taxable income.
As always please discuss your potential tax savings implications with your financial or tax advisor.