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Assume I have a stock that I purchased for $1000 and it now has a value of $5000, a potential long term capital gain of $4000. Assume also that I owe $20750 in total tax on an income of $80000 based on this calculator,

https://neuvoo.com/tax-calculator/?iam=&uet_calculate=calculate&salary=80000&from=year&region=Massachusetts

If I sold the stock and paid 15% capital gain tax on the 4k * 15% = 600. $3400 remain to help pay for the income tax for a total out of pocket expense around 20750-3400=17350.

If I gift the stock to charity I get a $5000 deduction from my gross 80k income for a taxable amount of 75K. The tax I then owe is ~19K.

Why would anyone then gift an appreciated stock to charity if it makes more sense to sell it and pay the capital gain tax??

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    The calculator is too simplistic. There are differences in how deductions are handled at the state and federal levels, your deduction doesn't affect what you pay into SS or Medicare, and the $5000 you offset with your deduction is taxed at your marginal tax rate, not your effective tax rate. – chepner Feb 3 at 15:46
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    Some people are so keep on saving taxes, they don't even calculate what's left for living. I have seen 2 people spending almost all their income of their company, buying new properties for the company to save taxes, wondering why they can't even go out for dinner... – Thomas Weller Feb 4 at 20:32
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    Why do people insist on using "gift" as a verb? – Acccumulation Feb 5 at 6:27
  • @ThomasWeller The obvious solution would be dining on the company's card, no? – Mast Feb 5 at 13:35
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    @Acccumulation It is a verb in many online services/games/social networks nowadays. – Brady Gilg Feb 5 at 16:15
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This might be a strange notion but people donate to charity because they... want to donate to charity.

That's it.

Now, if you are going to donate to charity, donating an appreciated stock may be more tax-efficient than selling it and then donating the proceeds.

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    Thank you. But what do you mean by 'tax-efficient'? Charities pay no tax. Giving the appreciated stock benefits the charity more than selling the stock, paying the tax and giving them the money. But giving them the stock benefits me less.Either way, I'm giving money to charity – aquagremlin Feb 3 at 1:38
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    @aquagremlin Say you want to give $5,000 to charity. You can do this by giving them $5,000 in cash or by giving them stock that you bought for less than $5,000 but that is now worth $5,000. Your taxes will be as bit lower if you gift them the stock because you will have less capital gains. It won't make a difference to the charity. So gifting an appreciated asset is a more tax-efficient way to gift to charity than gifting cash. None of this matters if you aren't interested in giving to charity. – David Schwartz Feb 3 at 8:30
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    I AM going to give to charity but I want to minimize the tax I pay. If I give them the stock, I take a $5000 deduction from my gross income, If I sell the stock, pay the capital gain tax and THEN gift them the remaining amount, THEN I get to deduct LESS?? – aquagremlin Feb 4 at 0:15
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    The question says you're going to use the proceeds from the sale to help pay the taxes, not give them to charity. – Barmar Feb 4 at 0:28
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    @Aequitas Both donations are tax deductible, so that isn't what makes the difference. What makes the difference is avoiding the capital gains tax on the appreciated asset because you never realize that gain. – David Schwartz Feb 4 at 19:39
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Sorry, your math is off. You seem to be stating you are in the 20% marginal federal rate. 15% cap gain.

$5000 stock donated to charity. You save $1000 on Fed tax due to the deduction.

$5000 stock sold. $4000 was gain and taxed $600. You now have $4400 to donate and save $880 in fed tax.

Another example, same tax rates apply, but donor is planning to gift $5K regardless.

You start out with $5000 in stock, sell it for a $4k LT gain. $800 due in tax. You send $5000 to the charity, getting a $1K tax refund, and send $800 to the IRS. You have $200 in hand. OR You donate the $5K in appreciated stock, and get $1K tax refund. You are $800 better off.

In effect, the stock donation saves you/charity the $800 cap gain tax that would go to the government.

The difference can ripple into other parts of your return, for those who in a number of phase-out situations, and the effect of what you save by donating the stock can be higher than this example.

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    They're not donating the $4400, though; they're saying why would they donate the $5000 versus keeping it. – Joe Feb 3 at 15:45
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    ? That never occurred to me. Thx. – JTP - Apologise to Monica Feb 3 at 16:23
  • So if OP sells the stock and donates the proceeds, taxes are $280 lower than not selling and not donating, or $720 higher than donating the appreciated stock (and the charity gets an additional $600). – Ross Millikan Feb 4 at 0:54
  • Ross - not following you. See my updated answer, no big deal, I think my update is more clear. – JTP - Apologise to Monica Feb 4 at 11:35
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If you give the stock to charity, you get a tax deduction based on the $5K value.

If you sell the stock and give the proceeds to charity, you get the same tax deduction, but you also have to pay capital gains tax on $4K.

Assuming you want to give $5K to charity and also want to dispose of the stock, the former method is clearly better, since you avoid the capital gains tax and everything else is the same.

I have some stock that I purchased using an ESOP many years ago; the price discounts resulted in significant unrealized gains. I've been using this stock as my source for large charitable contributions most years since they became qualified. I also do my contributions through a charitable gift fund -- the provider makes gifting stock or mutual funds very easy, especially if it's held in their brokerage (I have multiple lots, and can simply tell them on the website "Select $20K worth from the lots with the most gains").

  • but you also paid tax on the cash that you used to give to the charity right? so assuming you were and will be in the same tax bracket it should end up the same right? – Aequitas Feb 4 at 5:15
  • No, you get to deduct the cash you gave to the charity. This all assumes you're able to itemize deductions, but that applies to both cases. – Barmar Feb 4 at 6:25
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    @Aequitas No, it's a difference of who pays the capital gains tax. If you donate the stock, the charity is the one to pay the capital gains tax, at their 0% tax rate. – Harper - Reinstate Monica Feb 5 at 2:49
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Donate the appreciated stock if held > 1 year

Don't sell it for cash then donate the cash. If you do, you pay capital gains at 15%... if you donate the stock, the charity pays the capital gains (at their 0% rate).

However deduction only works if your existing deductions exceed the now-much-larger standard deduction of $12,000+.

Not donating is always better for the bottom-line than donating

Until tax rates exceed 100%, not donating is always better for your financial bottom-line.

Charitable giving is not for the greedy, yet all the great industrialists seem to come around to it. Go figure.

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Also bear in mind whether the appreciated value has an accurate value.

This doesn't really apply to stocks but does apply to art and property. Say you bought a piece of art for $1 million several years ago. You now have someone value it at $5 million and donate it to charity. In reality it might not have sold for $5 million but because you gave it to charity no one can really confirm or deny it but you can still take the tax deduction on the $5 million.

So if you can have your asset valued higher than it's actually worth then donating to it directly to charity can have a net gain for yourself.

WSJ article on donating artwork

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    "if you can have your asset valued higher than it's actually worth" sounds very similar to fraud. – TripeHound Feb 3 at 16:13
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    @TripeHound I agree but with things that don't have a high volume of traded items (large properties and artworks can be one of a kind) it's very hard to prove that the value was inflated. Also I think the legality of this is irrelevant to the question. – Sam Dean Feb 3 at 16:21
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    There's a difference between "being uncertain of the value" and "valued higher than it's actually worth_". The former acknowledges you don't know what it's worth; the latter implies you do know what it's worth. As to legality: pointing out any potential legal pitfalls of any course of action is almost always relevant. – TripeHound Feb 3 at 16:27
  • The conditions in the question assume that you actually would sell the property for the same price as the assessed value. While there may be circumstances where you could take advantage of a disparity, I don't think it's relevant to this specific question, which is about the tax benefits when they're equal. – Barmar Feb 4 at 0:26
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    Difference being, it would sell for $5 million eventually with a long enough wait and expensive marketing and sales commissions. But it would sell for $5M, so you get to claim $5M. – Harper - Reinstate Monica Feb 5 at 2:52
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Look into a Charitable Remainder Trust (CRust) or Pooled Income Fund (PIF). I 'disposed' of a bunch of work stock that I had bought over a bunch of years and had changed stock symbols a couple of times making determining a cost-basis impossible (ok, overly time consuming). So rather than take a tax hit for the entire amount my adviser steered me to a PIF. I got the entire face-value of the donation as a tax deduction that year (which allowed me to convert a bunch of IRA to Roth), and I still get interest from 50% of the value for life. When I'm gone the donation goes fully to the charity.

  • Sorry, I misstated: I get to claim portion of the donation as a charitable contribution based on some forumula related to how much longer I'm expected to live. Still, I recall it was a vast majority of the gift amount. – Arluin Feb 3 at 21:30

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