Legacy Financial

You Can Donate Stock to Charity!

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You Can Donate Stock to Charity!

Now is the Time to Donate Appreciated Stock!

Since we hit bottom in March 2009, the S&P 500 has grown more than 300%. While the bull market may tax planning nhhave slowed in 2015 and 2016, the enjoyable growth that most stockholders have seen over the last 8 years has certainly returned. The question is, how long will this last?

One recent article referred to the Market-Cap-to-GDP ratio (apparently a favorite indicator used by Warren Buffett) that compares the total price of all publicly traded firms to the gross domestic product. The premise is that stock valuation should have some direct linkage to the total value of goods and services produced. A measure of 100% would indicate that American stocks are fairly valued. The higher that number is over 100%, the greater that the stock market is overvalued. Currently, that reading is at 137.0%, which qualifies the market as significantly overvalued!

If these indicators are to be believed, now may be the time to divest from highly appreciated stocks. However, with any stock sale gain comes a capital gains tax hit. How to avoid potential future investment declines and avoid capital gains tax? Appreciated stock is a powerful tool for charitable giving that is often overlooked.

Some rules apply depending upon how long you’ve owned the appreciated stock in question:

Less than a year: If the stock has been owned for less than a year, your deduction is limited to the cost basis (what you paid for the stock) not the current market value.

More than a year: Stock held over a year can be deducted at its current fair market value on the date it is gifted.

The IRS does mandate some limitations. Deductions for appreciated stock is limited up to 30% of adjusted gross income (AGI) (however, there is a 5-year carry-forward for unused deductions.) Although it is possible to gift those appreciated shares directly to a charity, placing them within a donor advised fund (DAF) may be more beneficial.

The first issue is that some charitable organizations may not have the capability or understanding on how to accept a gift of stock and how to liquidate it. Using a donor advised fund gives you a tool whereby your appreciated stock can be gifted into the fund and held in that format.

A DAF also gives a donor the freedom of time; they can make their charitable grant at a time that fits their schedule yet still benefit from an immediate income tax deduction in the year they deposited those appreciated shares into the DAF.

The donor also benefits from no capital gains tax on their gift of appreciated stock. Furthermore, any continued growth of those appreciated shares within the DAF will be tax-free.

Act now before year-end to secure tax advantages and accomplish your charitable intent.

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