John M. Hoffman & Associates CPAs
Frequently Asked Tax Questions
"What is the benefit of gifting appreciated stock to charity?"
Suppose you were fortunate enough to buy some Microsoft stock for $1,000 years ago and it is now worth $10,000. It is your 25th reunion from Appalachian State and for a donation of $10,000 they will name the business school after you. If you write them a check for $10,000 you will get a charitable donation for $10,000. Let's say that in order for you to do that, you need to sell your Microsoft shares. Selling those shares will result in a $9,000 capital gain. The taxes on that capital gain (fed and state) will likely be at least 20%, or $1,800. If instead, you donated the Microsoft shares worth $10,000 to the college, you would still get the charitable contribution deduction but not have to pay tax on the capital gain.
Let's say that you did not want to give the whole $10,000 to one organization but $500 each to 20 organizations? You could get the same result be gifting the shares to something like the Fidelity Charitable Gift Fund. Fidelity is not the only game in town for this but they have been doing it the longest and they are the largest. You donate the stock to Fidelity's Charitable Fund and you get a deduction for the value of the stock immediately. You then direct Fidelity as to what qualified charities to send the money to. While the money is sitting at Fidelity it is invested and likely grows in value. Accordingly, you could donate the $10,000 of stock, taking a current deduction and then direct Fidelity to send $1,000 per year to your favorite organization on your behalf. If the money earns 10% per year, this could go on forever. You do not get additional deductions each year but instead benefit from the up front deduction.
Fidelity has a $5,000 minimum initial contribution amount and a minimum of $100 for amounts you then direct Fidelity to send to your favorite charity. We suggest you contact Fidelity or these other organizations for the specific details.
This is also an ideal way to resolve the problem of stocks that you have no idea what the basis is. Put them all together and make a sizeable charitable donation!
