When you have benefitted from a rising stock market, a gift of stock rather than cash to a favorite charity is a tax-saving strategy worth considering. By making a gift using appreciated securities – stocks, bonds, and mutual funds – you can completely avoid capital gains taxes and take an income tax charitable deduction for the fair market value of the shares given to MUSC. It’s important to follow the IRS rules to benefit from these generous tax savings.
First, you must have owned the stock, bond, or mutual fund that has appreciated in value for more than one year before your contribution. IRS requires you to transfer the shares to the MUSC Foundation – don’t sell the shares yourself. You will avoid paying tax on the capital gain when you give the shares to the MUSC Foundation. When we sell the shares there will be no taxes due on the gain because MUSC is tax-exempt. You can take an income tax charitable deduction for the fair market value of the shares transferred, up to 30% of your adjusted gross income, which will save you even more in taxes if you itemize your deductions. You can carry forward any unused deduction for an additional five years.
The chart below shows how making a gift of appreciated stock can save substantially more taxes than making the same size gift with cash. Your tax savings will be determined by your tax bracket and capital gain tax rate. The example assumes you itemize your deductions.
Cash Gift vs. Stock Gift
| Cash Gift | Stock Gift | |
| a. Gift Value | $10,000 | $10,000 |
| b. Income tax deduction | $10,000 | $10,000 |
| c. Income tax saved (at 37% rate)* | $3,700 | $3,700 |
| d. Purchase price | - | $1,000 |
| e. Increase in value (a - d) | - | $9,000 |
| f. Tax avoided on gain (at 20% rate) | - | $1,800 |
| g. Total tax savings (c + f)* | $3,700 | $5,500 |
*assumes donor itemized deductions
Perhaps you are reluctant to part with your shares of stock, anticipating the shares will continue to go up in value. If so, you might consider giving the shares to the MUSC Foundation and purchasing shares of the same stock using cash, which will provide you with a new higher cost basis should you sell the shares in the future.
When considering a gift of this type you should always consult your financial and tax advisors. The IRS has provided tax incentives to encourage the philanthropically inclined to make generous gifts to charity. By taking advantage of the tax laws, you will likely find that you can make a generous gift, support a charity whose mission is of importance to you, and reduce your tax bill all at the same time. That is how philanthropy and charities thrive.
