Current tax reform proposals would indicate that many taxpayers will experience lower tax rates, and may no longer benefit from itemizing deductions. With stock returns at some of the highest levels in history, it may be a good time to make any larger charitable donations that you have been thinking about. Plus, you may be able to make those donations at half price if done by the end of the year.
Consider the following example:
- A married couple wants to donate $50,000 to their favorite qualifying charity.
- The couple is currently in the highest Federal tax bracket.
- They own 100 shares of Google stock, purchased in 2015 at an original cost of $52,000 and with a current fair value of $104,000.
Assuming the couple transfers $50,000 of stock to their favorite charity, below is the calculation of the potential tax savings:
Tax savings from donation:
Fair value of stock provided to qualified charity $50,000
Taxpayers’ incremental tax rate 39.6%
Tax savings from donation $19,800
Tax savings from elimination of long-term capital gain:
Fair value of stock provided to qualified charity $50,000
Tax basis of stock 25,000
Gain 25,000
Long-term capital gains federal tax rate 20%
Tax savings from elimination of long-term capital gain $10,000
Total tax savings $29,800
So, from the above example, the net cost to this couple is only $20,200 (about a 60 percent discount from the donation amount). If you are philanthropically inclined, have some large unrealized long-term capital gains, have minimal itemized deductions other than state and local taxes, and the proposed tax legislation becomes a reality, ask your tax adviser whether now is the right time to make those larger donations.
If you decide to proceed, be sure to consult the custodian of your investment funds to determine how much time it will take to make the transfer. In addition, you will want to verify with the done that the gift will be accepted by December 31.
David E. Shaffer
is a director with Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email.
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