Travis H. Long, CPA, Inc. Blog

Originally published in the Pacific Grove Hometown Bulletin

March 7, 2012

Last issue I spoke about the issues surrounding charitable deductions for donated goods or services.  I mentioned at the end of the article a much better way of making donations rather than through the contribution of goods, services, or even cash – that way is through  the donation of appreciated assets.  I will use stock in my explanation below, but keep in mind this same principal generally applies to any appreciated assets including mutual funds, real estate, art work, collectibles, etc.

The donation of appreciated assets, such as stock, is an incredible tool if you 1) have some, or 2) can plan to have some for donations down the road!  Donating appreciated stock is like having your cake and eating it too: you basically get two tax benefits.  Here is how it works.  Let us assume you buy $1,000 of stock, and over time, and after a treacherous dip to $400 (!), it rebounds and climbs to $1,500.  Then let us assume your favorite charitable organizations need funds.  You could sell that $1,500 of stock and give the cash proceeds to the organization.  You would  get a $1,500 charitable donation, but you would also have a taxable gain of $500 ($1,500 sales price less $1,000 cost) since you sold the stock.

Instead of selling the stock, let us assume you transferred the stock in-kind to the charitable organization.  You still get the $1,500 charitable donation but you do not have to pay any tax on the built-in-gains of $500.   This could be a huge benefit, especially if you have stock that has appreciated substantially over many years.  You would be much better off making your charitable contributions in this manner, rather than writing checks.

For those with no appreciated stock, long-term planning might suggest opening a separate brokerage account and investing money each year in growth stocks to be used in the future for making donations in lieu of your less favorable cash.  This may take a number of years to achieve, but eventually you could turn the tables and find yourself making your larger donations in appreciated stock, saving you even more tax.

Keep in mind, if you plan to donate something other than financial assets that have a readily determinable value, you would typically need an appraisal if the value is over $5,000.

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.