Gifts of Appreciated Stock: Let the Numbers Do the Talking 

No matter how often you remind clients to pause before they reach for the checkbook, many still default to giving cash. As a professional advisor, you know that giving long-term appreciated assets is often one of the most tax-savvy ways your clients can support their favorite charities. It can be hard to overcome the idea that “cash is king” and convey this message with words that stick. 

Consider using these three simplified examples* to help your clients see the benefits of giving appreciated stock.  

1) Victoria and Matteo Ortega give $100,000

Victoria and Matteo plan to give $100,000 to their endowed donor-advised fund at the Community Foundation.

Let’s assume they have a combined adjusted gross income of $600,000, which lands them in the 35% federal income tax bracket.

If they gave $100,000 in cash to their donor-advised fund, they could realize a potential income tax savings of $35,000. 

What if instead of giving cash, Victoria and Matteo gave highly-appreciated, publicly-traded stock, valued currently at $100,000, to their donor-advised fund? Let’s assume they’ve been holding the stock for many years, and the shares have a cost basis of $20,000.  

Not only are Victoria and Matteo eligible for a potential income tax deduction that will save them up to $35,000, but they have also potentially avoided $12,000 of capital gains tax that they would have owed if they’d sold the stock (using a long-term capital gains tax rate of 15%).  

The bottom line: These happy clients would give the same gift value to the charity they love, benefit from the same income tax savings, and avoid $12,000 in capital gains tax. 

2) Jesse and Dylan Williams give $1 million 

Jesse and Dylan plan to give $1 million to community causes this year. They’ll do that by adding $500,000 to their charitable investor fund at the Community Foundation, which they will use to support their favorite charities. They’ll also be making a $500,000 gift to an unrestricted fund at the Foundation to help address the region’s greatest needs for generations to come.  

Let’s assume Jesse and Dylan are in the highest federal income tax bracket because they earn multiple seven figures.

If they were to give $1 million in cash, they could potentially save up to $370,000 in income tax.

If they gave publicly-traded stock instead, assuming a $200,000 cost basis in stock valued currently at $1 million, they would still potentially save up to $370,000 in income tax, and they would also potentially avoid $160,000 in capital gains tax (based on a long-term capital gains tax rate of 20%).

The bottom line: These savvy clients avoid $160,000 in capital gains tax while carrying out their $1 million charitable giving goal for this year.  

3) Ravi and Asha Singh give $5 million 

Ravi and Asha plan to give $5 million to charity as the cornerstone of their overall philanthropy plan. They would like to use publicly-traded stock that they’ve held for many years, valued currently at $5 million. They want to receive a lifetime income stream from these assets, so that the remaining assets will flow to their fund at the Community Foundation after their deaths. In this case, you’ll explore setting up a charitable remainder trust that pays out an income stream to Ravi and Asha while they are both living, and then to the survivor for the survivor’s lifetime.

Let’s assume Ravi and Asha are both 55 years old. And let’s say that the stock has a very low cost basis – just $500,000 – because the Singhs have held it for so long. Depending on the IRS’s applicable rates, and assuming a 5% annual payout rate paid at the end of each quarter, here’s an approximate tax result if Ravi and Asha establish a charitable remainder trust, making the Community Foundation the beneficiary: 

• $1,042,550 – Approximate potential income tax deduction based on the present value of the gift of the remainder interest to charity  
• $4,500,000 – Capital gains that may not be subject to tax 
• $250,000 – Total payments during the first year 
• 5% – Annual payments of the value of the assets in the trust, which means the income stream will fluctuate depending on the value of the assets 

Following the death of the survivor of Ravi and Asha, the remaining assets will flow to the Community Foundation, where the couple has already established a declaration of intent. Upon their deaths, the assets will split equally into two funds. The first fund will be an endowed donor-advised fund for which their children will serve as advisors, and the second is an unrestricted endowment fund to support the changing needs of the community, forever.

The bottom line: These philanthropists give the same gift value: However, now they are also members of the Community Foundation’s legacy society. They will get up to $1,042,550 in income tax savings and avoid $4,500,000 in capital gains tax. Additionally, they will receive $250,000 in income in year one and a similar, but market-dependent, income payment every year thereafter.  

Of course, every client’s circumstances are unique. The net-net here, though, is that the Community Foundation is happy to discuss the various tax-savvy options for charitable giving in any client situation. We’re here for you! Please call or email Andrew Muldoon (amuldoon@racf.org or 585.341.4360). It is our honor to help you serve your charitable clients.  

*These hypothetical examples are for illustrative purposes only. Every client’s situation is different, and therefore the tax strategy and tax impact will be different for each client and will not exactly match those shared above. For example, these illustrations are based on federal income tax rates only, and you’ll need to evaluate, among many other factors, the impact of state taxes.