As discussed in January’s post, due to the newly-doubled standard deduction, many families will no longer be able to itemize contributions to qualifying charities starting this year. But don’t throw out the baby with the bathwater! You can still save on taxes by giving to charity. But start by putting away your checkbook.
Charitable donations can be made in cash, property, and shares of stock. For stock that’s highly appreciated, you can avoid the capital gain, if you give stock directly to the charity. In addition you deduct the stock’s fair market value, if you do itemize. This works most effectively when you donate shares with lowest basis relative to its market value. Even if you don’t want to reduce the number of shares in a particular position: simply donate the shares and buy back the exact same number of shares with the cash you were originally planning to donate. Wash sale rules do not apply – you don’t even have to wait 30 days to re-purchase. The result: no change to your portfolio aside from the “step-up” in basis on the shares you gifted and no taxes due!
The only time it might be less beneficial to donate appreciated stock is if your income is very low in a given year. The deduction for donations of appreciated stock to public charities is limited to 30% of your adjusted gross income (AGI), whereas cash donations are subject to a 60% of AGI limitation (up from 50% in 2017). Any amount over the 30% threshold would be a carryover for up to five years.
Let us know if you have any questions. And, the next time your favorite charity comes calling, let us help you give stock instead of cash.