How to Benefit from Giving Stock to a Charity

Gift of Stock

If you own stocks or mutual funds that are publicly traded in the U.S. markets, that have large unrealized gains in taxable accounts, and you wish to make a substantial donation to a qualified charitable organization such as The Prem Rawat Foundation (TPRF), you may wish to consider contributing the appreciated stock through a transfer.

Ordinarily, one might sell a stock and then donate some or all the proceeds to a charity. Doing so would likely incur unnecessary costs to you, deplete the total amount of money you wish to donate, and reduce the amount of your charitable tax deduction. However, by contributing (transferring) all or part of your appreciated stock, you may avoid the capital gains tax of 20% and the new 3.8% Medicare tax. If the appreciated stock is transferred without a sale, a capital gain is not triggered, and your adjusted gross income is reduced.

So instead of selling the stock, you could simply transfer all or a partial percentage of the shares of the stock to TPRF. The benefits of this approach are:

  • You avoid the long-term capital gains tax on the profit of the shares you donated and avoid commissions for selling the stock because there is no sale of the stock, just a transfer or contribution.
  • Because TPRF is a non-profit organization, you would not be taxed on the appreciation, while TPRF would receive the full current value of the stock transferred.
  • Your tax deduction would be for the appreciated value of the asset instead of its value after the capital gains tax.

There are, however, situations where donating or transferring stock to a qualified charitable organization would not work to your benefit, such as if the stock has incurred a loss or has been held less than one year. Your tax adviser can give you more advice on these decisions.

Donating unrealized appreciated stock can be an effective strategy at the end of the year if you have appreciated shares you want to redeem or if you are trying to rebalance your portfolio. TPRF’s brokerage account is set up to facilitate transfers of stock.

Please consult with your financial planner, tax adviser, or accountant to make sure a transfer would work for your situation.

For further information regarding this article or information about transferring stock to TPRF, please contact: [email protected]

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