Net Cost of Charitable donation of appreciated stocks

On 11/12/2017 7:16 AM, Not A Clue wrote:


All I did was share the link. :)
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On 11/7/2017 10:00 AM, Not A Clue wrote:

I find the analysis clearer when focusing on after tax assets instead of tax rates.
Initially you have an appreciated asset with after tax value of $105 (FMV of $135 less the embedded LTCG tax of $30). Whether you keep or dispose of the appreciated asset, it is worth $105 to you today.
Scenario 1: You keep the appreciated asset and have an asset worth $105 to you.
Scenario 2: If you sell the appreciated asset, pay the LTCG tax, and donate the $105 in net proceeds to charity, you lose the appreciated asset and you end up with a deduction of $105. Using your numbers, this results in a tax reduction of 35% x $105 ($36.75). At this point, the appreciated asset is gone and you have $36.75 in cash. You have given up an asset worth $105 and received $36.75 for a net cost of $68.25.
Scenario 3: If you donate the appreciated asset directly to charity, you lose the appreciated asset and you end up with a deduction of $135. Using your numbers, this results in a tax reduction of 35% x $135 ($47.25). At this point, the appreciated asset is gone and you have $47.25 in cash for a net cost of $57.75 ($105-$47.25).
Scenario 2 is unambiguously inferior to Scenario 3. Both you and the charity wind up with less.
Even if you take the Standard Deduction, Scenario 3 is better than Scenario 2. Scenario 3 is better for the charity since it receives $135 in assets instead of $105. While Scenario 2 and 3 both appear to cost you $105, the higher AGI that shows up on your tax return with Scenario 2 may generate additional unexpected costs due to the complexity of the tax system.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Saturday, November 11, 2017 at 1:54:59 PM UTC-5, BignTall wrote:

Thanks for the detail explanation.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Tuesday, November 7, 2017 at 8:03:02 AM UTC-8, Not A Clue wrote:

Let's take another look at the scenarios with some more calculations, which unfortunately don't all fit on one line. This looks at these cases: 1. You don't do anything. 2. You sell the stock and keep proceeds. 3. You sell the stock and give proceeds to charity. 4. You give the appreciated stock to charity. I calculate the tax as you suggest and then look at the change to your wealth and what the charity gets. In calculating your wealth, I include the unrealized tax as well.
35% 30% Cash Capital Case Income Sale Deduction Tax 1 1000 0 0 -350.00 2 1000 100 0 -380.00 3 1000 100 135 -332.75 4 1000 0 135 -302.75
Unrealized Wealth + Case Asset Basis Tax 30% Wealth Charity Delta Charity Delta 1 135 35 -30 755.00 0 0.00 755.00 0.00 2 135 135 0 755.00 0 0.00 755.00 0.00 3 0 0 0 667.25 135 -87.75 802.25 47.25 4 0 0 0 697.25 135 -57.75 832.25 77.25
So, the difference in your wealth between 3 & 4 is $30 more in your pocket, but it still costs $58 to you. But the charity gets $135. The final delta is the net transfer of money from the government to the charity from the charitable deduction.
Case 4 is better than case 3 for you, but worse for the government. The charity comes out the same in either.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

BeanSmart.com is a site by and for consumers of financial services and advice. We are not affiliated with any of the banks, financial services or software manufacturers discussed here. All logos and trade names are the property of their respective owners.

Tax and financial advice you come across on this site is freely given by your peers and professionals on their own time and out of the kindness of their hearts. We can guarantee neither accuracy of such advice nor its applicability for your situation. Simply put, you are fully responsible for the results of using information from this site in real life situations.