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Question of the Month: Why should I donate stock shares to Giant Steps?

From Jim Brush, a former CPA, and current President and CEO of Summit State Bank:

You may want to consider donating your highly appreciated shares of stock to your favorite charity instead of selling them in order to achieve a higher net transfer value. This is a result of you owing less income taxes than if you sold the stock and then donated the net after tax cash, or in other words, donate the full value of shares and keeping your cash. This situation applies to most individuals, but you should consult with your tax accountant to be sure.

Here is an example. Say you wish to contribute $10,000 to Giant Steps and your combined federal and state tax bracket is 40%. A cash donation would result in a tax savings of $4,000, making your net transfer $6,000, while benefiting the charitable organization by the full $10,000, not a bad deal! However, let’s say you have shares of XYZ stock worth $10,000 that cost you only $2,000. If you sold them you may owe capital gains taxes of $3,000, netting you $7,000, so you would then have to make up the taxes with $3,000 out of your other other cash in order to donate the full desired amount of $10,000. If you simply transfer the shares from your brokerage to their brokerage instead of selling them, you almost always end up in the same position as the original $10,000 cash tax deduction. The bottom line is that the government gets $3,000 less and you end up $3,000 better.

Jim Brush is a CPA (inactive) who formerly had a tax practice in Healdsburg for many years.