Giving Publicly Traded Stock To Charity
One of the best things about having highly appreciated publicly traded stock is that it is the most attractive way to make charitable gifts.
The Gotham Gal and I do this all of the time and I encourage others (founders, early employees, investors, angels, etc) to do it.
Here’s how it works:
Let’s say you have shares of Facebook that you got when you joined back in 2006.
Let’s say that your exercise price was $3/share and that is your cost basis.
Let’s say you want to make a $100,000 gift to a great cause that you are deeply involved with.
Instead of taking out your checkbook (who does that anymore?) and writing a $100,000 check, consider gifting some Facebook shares.
At $175/share, a $100,000 gift would be 571 shares.
So you ask the charity if you can gift shares. Almost every time I do that, the answer is yes. They give you a brokerage account that you can “DTC” the shares to.
And you instruct your brokerage firm to move the 571 shares to the charity’s brokerage account and you have made a $100,000 gift.
But, because you no longer have to pay the capital gains taxes on those shares when you sell them, and neither does the charity, you have a much more tax efficient gift.
I figure that a stock gift costs about 10-20% of the dollar value of the gift if you live in a high tax location like NYC.
Here is how I get to that math, using NYC tax rates:
$100,000 gift
less $50,000 for the tax benefit of the charitable gift deduction
less $38,000 for the capital gains taxes that do not have to be paid on the stock
equals $12,000
So if you have highly appreciated publicly traded stock and are interested in giving to good causes, consider gifting stock instead of cash.
It is a great way to be generous.
Comments (Archived):
Just curious. Would you expect the charity to liquidate the stock imediately or would you be happy for them to play the market and let it ride .Can see virtue in both options but would be painful if they let it ride, markets turned and they took a big needless hit in the gift you gave .
I’ve been involved on the side of nonprofits receiving stocks.For the donor, they shouldn’t have any control over whether the charity sells immediately or not. This is to avoid having the charity’s subsequent actions somehow benefit the donor through the market.For the organization, it’s rare that an Attorney’s General has gone after a charitable organization (i.e. their board who has fiduciary responsibility) for being poor stewards of their money, but it happens. I could imagine a huge endowment or foundation to hold because they’re actively managing their investments. But most of my experience in the $1-5M yearly nonprofit budget is to immediately sell and contribute to operations or capital expenditure.
I don’t tell them what to do with it for reasons that Ben articulates below. But when I am not the donor, but on the Board, I strongly advise to sell immediately
is that an indication that you exit stocks in this way when you think they have reached the top?
Usually folks donate when they deem the stock to be at a top, and have given it much analysis. Further, they must be sophisticated if they know how and why to donate appreciated stock. Therefore, I believe that the donor has done the research for us, and further, the gain for the charity is 100 percent. So…we sell.
Selling immediately is Methuselah Foundation’s practice. I’ve never regretted this policy. We need to pay attention to our charitable mission and avoid time and attention drains – such as worrying about when to sell. I’d rather worry about how to succeed in our goals.
Hopefully, one day the same treatment would apply to crypto as well.
I suspect it already does
Methuselah Foundation is a beneficiary of a $1,058,000 donation in Bitcoin from the Pineapple Fund. The rules are the same as donations of appreciated stock. We are very grateful to Pine of course!
You’re donating someone elses’ future money though, unless you realize the crypto-asset into a fiat currency now and then it’s donated; then you’re using present moment latest buyers/adopters’ money to realize its value. It seems quite common for millions in crypto-assets to be donated as part of countering taxes.
I appreciate the sentiment here but I think this might not work for everyone? If i want to donate my money to charity I have two options:1. Donate $1000 cash to Code for Boston at https://secure.codeforameri… which is a 501c3 under the IRS code.2. Donate $1000 of stock to the sameIf I exercise option 1 and itemize, then I can deduct $1000 from my income. Given that I am in the 25% tax bracket that means my tax liability is reduced by $250.If I exercise option 2 and itemize, I avert paying a 15% long term capital gains tax to the IRS on my gain. My tax liability does not change at all.Clearly option 1 is superior to option 2 in that situation. That being said, if I do not itemize then option 2 does end up being better.Just want to warn folks that they may want to consult their own lawyers and tax accountants to review their individual situations before making these decisions. It is unfortunately that our friends in the United States Congress give us so many different ways to need to think about giving our money away instead of providing a simple code. Though as a lawyer I do appreciate they’re doing their part to keep lawyers in business. 😉
You get the benefit of both in a stock gift. It is not either or, it is both
Oh wow, the coffee had not kicked in yet, but i see now, the IRS lets you “double dip” by averting cap gains and deducting from ordinary income. Well played.
Exactly!
One issue is though for your case if you are donating $1,000 (or anyone in that level of income etc) is you might not get the 25% ordinary income break, because you can only do this if you itemize deductions instead of take the standard deduction, which about 75% or so take the standard deduction. Clearly by the time you are talking a $100,000 deduction then you are very likely to itemize. Just wanted to point that out… pretty sure this is correct.
As long as you are someone who pays tax on capital gains (or will at the time you sell in a future year), you’ll still get a tax benefit of this stock donation strategy even if you don’t itemize in the year of donation. The benefit is admittedly not as high as someone in a higher bracket who itemizes, but it’s still better than cash donations (where you get no tax benefit if you don’t itemize).
Technically though (and if I understand the point being made) it’s not really a ‘double dip’. If you realize the income you pay capital gains. (But you didn’t so…) If you donate the property you get credited either the higher of the capital gains tax or whatever your marginal tax rate is. This works in reverse when you sell capital gains property and recognize income. You pay the lower of either the capital gains rate (whatever it is for you 15/20 etc.) or your tax bracket marginal rate (who whatever the correct term is).Will say one other thing that will be unpopular here (and I try never to apologize for things that I say..). I think if you are young and you want to donate to charity fine. However if we can assume that someone doesn’t have considerable assets (or an inheritance inline) then that money should come out of your entertainment fund and not in addition to money spent on non-essentials and fun. The world is getting tougher and tougher and honestly you really need to squirrel away as much money as you can for the future. Look at just medicines that aren’t covered by healthcare anymore that you might have to potentially pay out of pocket at some time. Or other healthcare costs. Donating to charity is great if you already have more money or security than you need or in small amounts.
Fred, I’d add 2 important points. 1) using a donor advised fund allows you to distribute your gifts more easily and overtime, in addition to minimizing the burden of record keeping for tax purposes and 2) you can re-buy the stock to reset your tax basis if you are still bullish.
This is smart and thanks Fred.My favorite charities are animal rights charities and while massive in the community size are primitive in the mechanics to how to do so.Something to be fixed.
Fred, I’d add 2 important points. 1) using a donor advised fund allows you to distribute your gift over time and to multiple nonprofits as well as minimizes the administrative burden of record keeping for tax purposes and 2) you can rebuy the stock and reset your tax basis if you are still bullish.
Great points Scott. Thanks for adding to the knowledge dropping that is going on here today
Another point is that the stock does not have to be publicly traded. You can get all the benefits you mentioned, plus for a high marginal taxpayer, one could donate private (ie sec 144) shares and get the tax benefits, AND a bit of early liquidity – from avoided taxes – even though those shares are not tradable. Trick is to find a charity that has the sophistication to understand/handle sec 144 et al stock and is willing to accept private shares. You’d also need an arms length private valuation/appraisal done (appx $2k).I did this with Knowledge Adventure stock in 1995. The tax savings helped me to fund my next company.
.The 144 restriction can often be removed when it is donated.JLMwww.themusingsofthebigredca…
CFA Mondays!!
why does ‘charity’ exist?is it a recognition that the ‘free market’ (whatever that might mean) does not serve well the full needs of a society?
yes. It is recognition that darwinian capitalism has some holes in it. Ben Franklin and friends didn’t want .gov to be the perpetual provider of all services and felt that voluntary non-gov solutions were superior. For further research see Franklin’s “Junto” club…truly amazing guy!It is also true that many charities stink at actually prosecuting their mission. My personal preference would be that charities/foundations have a 30 year sunset clause. If you can’t fix the problem in 30 years, you’re not good at it, or you’re not really trying. What happens to the money/assets? I dunno – I’ll thinkaboudit.
.You piqued my interest.If you donated $100,000 of stock with a basis of $1713 (571 sh @ $3/sh), your capital gains taxes would be as follows:Feds: $23,390 (23.8%, remember you have to pay Obamacare tax)NY State: $6,732 (6.85%)NYC: $3,809Total tax = $33,931.This assumes the capital gain of $98,287, annual income of $1MM, itemized deductions, married, living in a Manhattan zip code (10012).This would give rise to a charitable donation deduction of $100,000 which would “shelter” a like amount of ordinary income.What is the value of that shelter, assuming the same conditions outlined above?Feds: $8,739 (assumes 2018 post Trump tax bill rate) (25% marginal, 11.28% effective)FICA: $7,650 (ahhh, FICA, never forget FICA) (7.65%)NY State: $4,715 (6.45% marginal, 4.75 effective)NYC: $2,857 (3.59% marginal, 2.86% effective)Total tax foregone = $23,947So, you would be donating something of $100,000 in value, beating Uncle out of $33,931 in embedded taxes, and generating a tax benefit of $23,947.In essence, you would be spending $100,000 to get $23,947. Your real cost is $76,053. That fact that there is an embedded capital gain tax of $33,931 is not really relevant.Your logic that you are avoiding $33,931 in taxes to receive a $23,947 in benefit is an interesting twist of logic.Perhaps, a better way to look at it might be that you traded your actual investment of $1,713 (571 sh @ $3/sh) for a benefit of $23,947 making this a 14X investment?BTW, under the Trump tax plan you saved the difference between $25,534 (2017 taxes) and $23,947 (2018 post Trump tax plan taxes) indicating that President Donald J Trump is looking after even wealthy, liberal venture capitalists.Thanks, Trump? Thanks for the $2,587 savings!Is this a great country or what?JLMwww.themusingsofthebigredca…
Are you sure about that FICA? I am not seeing how that enters into this at all. What am I missing here?
.One has to pay FICA on ordinary income if one is self-employed.JLMwww.themusingsofthebigredca…
Yeah but didn’t our hypothetical taxpayer “Fred” blow by that threshold for FICA. (As opposed to that 3.8% Ocare which soaks you all the time?)
.Fair point — the question is always is this the “first” $100K or the “last” $100K?JLMwww.themusingsofthebigredca…
Suppose you want to gift stock at a capital loss. Are there any tax benefits in doing so, or just the max $3K capital loss per annum w/ carryover provisions? Curious if there are any tax advantages under that scenario. Kind of doubt there are, but figured I’d throw it out there.
.Everything starts and ends with basis.You don’t get to access your loss unless you sell it and donate the proceeds. If you donate something, you only get FMV of the donation.JLMwww.themusingsofthebigredca…
Nice work señor Jeff.I wonder if you CEO coaching services also come with Trump propaganda attached.Haha… 🙂
.Policy, Brasso. Only policy and results.The world will be singing another tune when he bells the North Korean cow, no?JLMwww.themusingsofthebigredca…
He has stirred up the pot for sure, but for results I think we will have to wait. We also have to wait until history gets written.When I saw Kim Jong Un crossing the border I thought about what amount of the credit will history give to Trump and his policy towards North Corea. He built up a lot of pressure, absolutely yes. Both did. But if you consider Kim visit to China before visiting South Corea and the fact that Trump had just fired Tillerson, I don’t know what to think.I am craving for the insider’s book and political novel not written yet that will tell the real story of all of this in the future.And, for the record, I wish Trump the best.. not for his nasty and bullish personality but for the well being of everybody in the US, including family and friends up there.
.What makes the Trump v Kim saga so stark is the failure of his predecessors going back at least 4 Presidents. Everyone got rolled.Obama’s “strategic patience” walked us right into ICBMs and nukes. Trump was left with the drunken party hangover but didn’t get to enjoy the champagne.It is clear to me that he — fair play to his unpredictability — is the one who has forced this issue. He has forced the military gaming to include the real plans to take out Kim. He has forced China to take sides.Character flaws and genius often roll into each other in the same bed. If he is successful, he looks like a Nobel Peace Prize shoo-in and a genius.There is a small point that may be missed — the NK propaganda machine allowed the meeting with Pres Moon and the Kim speech from Panmunjon to be televised uncensored.In the Hermit Kingdom, that is a huge indicator.Remember, Kim travels with his own toilet so his enemies can’t analyze his feces. There are some people who think their defecation doesn’t stink, but few who think it is high grade intel.I’m long this thing gets done.ISIS, Syria, North Korea — nice work product, if he can do it. Iran better be paying attention.JLMwww.themusingsofthebigredca…
Please tell me you’re making that shit up.
Long that it gets done too!
.Kim had a second seance with Xi yesterday and today. The Chinese have their thumb on the scale.Sec of State Pompeo is over there right now. I predict he comes home with our detainees.Finger crossed.JLMwww.themusingsofthebigredca…
that’s not the math that my accountant and i use for our situation but i appreciate you trying to understand my tax situation.
.Totally generic, old boy. Not to worry.JLMwww.themusingsofthebigredca…
This actually and potentially works even better with speculative property that you donate to a willing charity. Consider property that has value but is not particularly liquid (not enough buyers however on the plus side sellers hold and do not sell). Things that have value but there is not an active market for that will pay a high price today. Items that you might have to wait 10 years or longer for the right buyer to come along and purchase. However if you find a charity (which will then wait for the buyer to come along and why not if no carry costs?) you could potentially take a deduction (given an appraisal) that values the property according to other similar sales that have recently occurred. So you are in a sense selling at the tax savings now instead of waiting for a buyer to come around in the future at the right market price. And that amount (that you can get in tax savings) is more than the value now to a dealer in the goods (who will buy on .10 or less on the dollar).
The other interesting angle to this concept is the right time of year to do this so as not to trigger the IRS discriminate audit function. [1] Nobody knows for sure but for some reason I do believe that the time you do the sale (and especially for non stock purposes) would enter into the scoring of whether your return is selected for an audit or further review. For that matter the mere act of making a donation (take note Matt Zagaja) given other numbers on the return could potentially trigger an audit. Like travel and entertainment donations can be a red flag. Hard to believe that the timing isn’t factored in in some way as well.As a fictional example let’s say you donate a piece of art to a charity. I say that giving it in February of the year raises less questions and less of a rank on the function than giving it in either December or April. IRS of course has exact info based on history and probabilities. Would make sense that they do this because in theory a donation made without any expectation of tax advantage seems to have less chance of being done to dodge taxes. (Once again not relevant for stock donations but other donated property..)[1] https://www.irs.gov/newsroo…
generous to make any gift to charity but the assumption here is that at some point in the future you would have sold the stock to incur the capital gain tax.
The calculation that the stock gift “costs” 10-20%” of the value of the stock (12% in the example) is wonky. Subtracting both the $50k and the $38k from the $100k doesn’t make sense. Using the assumptions above, giving a dollar cash out of pocket “costs” $0.50 on the dollar. Giving zero basis stock “costs” $0.31 on the dollar. The underlying point holds and is useful advice, that donating appreciated stock provides a meaningful tax benefit vs a cash donation.
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Absolutely love this idea Fred, thanks for sharing it!