A tried-and-true year end tax strategy is to make charitable donations. As long as you itemize and your gift qualifies, you can claim a charitable deduction. But did you know that you can enjoy an additional tax benefit if you donate long-term appreciated stock instead of cash?

2 Benefits From 1 Gift
Appreciated publicly traded stock you’ve held more than one year is long-term capital gains property. If you donate it to a qualified charity, you may be able to enjoy two tax benefits:

  1. If you itemize deductions, you can claim a charitable deduction equal to the stock’s fair market value, and
  2. You can avoid the capital gains tax you’d pay if you sold the stock.

Donating appreciated stock can be especially beneficial to taxpayers facing the 3.8% net investment income tax (NIIT) or the top 20% long-term capital gains rate this year.

Stock vs. Cash
Let’s say you donate $10,000 of stock that you paid $3,000 for, your ordinary-income tax rate is 37% and your long-term capital gains rate is 20%. Let’s also say you itemize deductions.

If you sold the stock, you’d pay $1,400 in tax on the $7,000 gain. If you were also subject to the 3.8% NIIT, you’d pay another $266 in NIIT.

By instead donating the stock to charity, you save $5,366 in federal tax ($1,666 in capital gains tax and NIIT plus $3,700 from the $10,000 income tax deduction). If you donated $10,000 in cash, your federal tax savings would be only $3,700.

Watch Your Step
First, remember that the Tax Cuts and Jobs Act nearly doubled the standard deduction, to $12,000 for singles and married couples filing separately, $18,000 for heads of households, and $24,000 for married couples filing jointly. The charitable deduction will provide a tax benefit only if your total itemized deductions exceed your standard deduction. Because the standard deduction is so much higher, even if you’ve itemized deductions in the past, you might not benefit from doing so for 2018.

Second, beware that donations of long-term capital gains property are subject to tighter deduction limits — 30% of your adjusted gross income for gifts to public charities, 20% for gifts to nonoperating private foundations (compared to 60% and 30%, respectively, for cash donations).

Finally, don’t donate stock that’s worth less than your basis. Instead, sell the stock so you can deduct the loss and then donate the cash proceeds to charity.

Minimizing Tax and Maximizing Deductions
For charitably inclined taxpayers who own appreciated stock and who’ll have enough itemized deductions to benefit from itemizing on their 2018 tax returns, donating the stock to charity can be an excellent year-end tax planning strategy. This is especially true if the stock is highly appreciated and you’d like to sell it but are worried about the tax liability.

As the end of the year quickly approaches, the holiday spirit glows a little brighter with each passing day. It causes us to consume ourselves with putting up lights and decorations, attending holiday parties, and enjoying all of the different holiday concoctions offered by Starbucks. But more importantly, the holiday spirit renews our sense of generosity and charity. Many charities, including Salvation Army and Heifer International, rely on our generous spirits during this time of year for much of their operating budgets and special programs that makes the lives of the under-served in our community a bit brighter. As you dig out the wrapping paper and sweaters from the deep recesses of your closet and decide what to give to Goodwill, you may want to consider the following important information to maximize your tax deductions. The IRS encourages your charity by allowing you to deduct charitable contributions on your individual tax return. However, there are important documentation rules taxpayers must follow in order to receive such benefits.

Substantiating cash contributions is quite simple and only requires bank records or a written receipt from the charitable organization for transactions exceeding $250.  On the other hand, rules surrounding property donations, or any other non-cash donations, become more complex as the value of the donation increases. Generally, for property contributions of $500 or less, the taxpayer must maintain a written receipt from the charitable organization detailing certain required information. If the total non-cash contributions exceed $500, but no more than $5,000, the taxpayer, in addition to maintaining the receipt mentioned above, must file IRS form 8283 (Non-cash Charitable Contributions) with their personal tax return. When a similar group of non-cash contributions (e.g. furniture, clothes, or electronics) exceeds $5,000, a written receipt from the charitable organization, form 8283, and a qualified appraisal must be completed in order to receive a tax deduction. Form 8283 must be signed by both the charitable organization and the qualified appraiser for property contributions exceeding $5,000. Generally, the receipt and the qualified appraisal do not need to be attached to the return but must be completed by the time the return is filed.

Please continue to support your local charities and if you are planning on making a substantial charitable contribution this holiday season, be sure to consult your PKF Texas tax advisor. Happy Holidays!