Client has stock bought at 5K 10 years later worth 50k. Wants to donate it to a private foundation that is not a operating foundation but qualifies as a charity under 501. Should the client sell the stock and give the cash proceeds to the charity or give the stock? What would be the client's deduction in the best scenario?
Sell the stocks, and incur cap gains tax, which he has to pay first? Give the stocks and claim a 50K charitable gift, provided that that charity indeed qualifies.
Yes, in the days when I still held non-IRA/401K stock at a profit, I went this route.
12K basis, $40K value. In ATMland, the tax on the 28K gain would have been $6300. So my $40K donation got me back $13,300 as well as the $6300 I didn't have to pay. Of course you don't make donations to get the deductions, but by using a charitable fund (through Schwab) I was able to maximize my tax situation and then spread the actual end donation over a couple years.
That's my longwinded way of responding "gift the stock.'. Joe
As others have said, gifting the stock avoids capital gains consequences for you.
I have not seen a discusion of how much of a deduction yu can take. Gifts of appreciated property to "50% organizations" -- most public charities -- is limitd o 30% of your adjustedgross income, with a carryover available.
For certain private foundations or donor directed funds that limit is reduced to 20%.
So if your AGI is 80,000 and this is an affected 30% organization, then only 20% x 80,000 = 16,000 of the 50,000 can be deducted currently and the remainder carried forward.
A 50% organization means you may deduct up to 50% of your AGI for cash contributions. Up to 30% of AGI for appreciated property.
In the past 20 years, that was often true. However, now that there's a 0% long-term capital gains rate (for some) and a CG rate that is often less than the regular tax rate, RUNNING THE NUMBERS is needed. Having $0 capital gain and a charitable deduction (even if carried forward) may be better than contributing the stock (where basis doesn't enter into the computation).
if your cap gain rate is zero, there is no difference. If your cap gain rate is anything greater than zero, you are better off donating the stock without selling. too simple a concept to need to RUN THE NUMBERS.
Wrong. Remember that if one sells the stock then donates the proceeds, the proceeds are NOT equal to the gain. There is a basis here. Also, the gain will be taxed at a lower rate than the rate applying to the contribution deduction, so it's possible to have a net tax benefit beyond that of zeroing out the reportable gain. The donation of cash is a fixed value transaction. The donation of stock isn't as fixed (the date can vary - giving date or receipt date by charity, etc.), and is even worse if a non-publically traded company. Furthermore, the donation of a non-cash appreciated asset may change the AGI percentage limit in a single year (30% or 20%, NOT 50%), forcing a charitable carryforward.
For those not in the 0% CG range, they are in the 15% CG range, but in the
25% or more range for ordinary income/deductions but may have the full 50% AGI ceiling available. A non-operating private foundation as the recipient forces a 30% AGI ceiling. There's a 10%+ rate difference in favor of the deduction.
A $45K LTCG that is taxed at 0% still increases AGI so that the taxpayer is likely to meet the 20% or 30% AGI ceiling without forcing a carryforward of the $50K contributed (by $9K or $13.5K due to the inclusion itself). Remember that to get the 0% rate, the taxpayer is going to have a low taxable income (which implies deductions approaching AGI). With a low AGI (one possibility), the deduction gets forced forward and is therefore worth "less."
So, the question is: Is the taxpayer better off with selling it and giving the proceeds (30% AGI ceiling, where even a 0% LTCG raises the ceiling), or directly donating it (a 20% AGI ceiling, with AGI being less), increasing the likelihood and size of a contribution carryforward (which may be used at a different [lesser] tax rate)?
It's usually better to maximize deductions in the current year than carrying them forward.
in article snipped-for-privacy@j18g2000prm.googlegroups.com, PeterL at snipped-for-privacy@gmail.com wrote on 3/26/09 9:50 PM:
In OH, there is no provision in the state income tax to deduct charitable contributions. If you pay the tax and then take the deduction for federal purposes, you will still pay OH tax on the sale. Much better to give away the stock.
Uncompensated advice guaranteed correct or double your money back
It seems to me that if one's income is that low, carrying forward the unused charitable contribution deduction is not necessarily a bad result -- depeending on future year scenarios. Avoiding having the LTCG appear in AGI can have other positive side-effects (such as enabling the Form 8880 credit).
The carryover lasts only 5 years. And if you donate to qualified disaster areas, the limit is 100% of AGI.
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I'm mind boggled by the rules for 50% organizations. Do organizations typically know which category they belong to? Rule (6) seems to say every charitable organization qualifies as 50% ("operated only for charitable, ... purposes"). What about donor advised funds? Someone mentioned them as belonging to the 30/20 category (as opposed to the
50/30).
IRS Pub 78 - a humongous database loaded with the names and type of all organizations that the IRS has formally determined to meet the requirements of their appropriate 501(c)(...) application, will also show if a
========================================= MODERATOR'S COMMENT: I went to IRS.Gov, typed PUB 78 in the search box on the upper left, and hit ENTER. PUB 78 was at the top of the list. RDA
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