Scott has been a regular supporter of a ministry's radio broadcasts. When he heard about the benefits of giving appreciated stock instead of cash, he decided to try it. Years ago, Scott purchased shares of his company stock for $5,000. Now those shares have a market value of $10,000.
If he were to sell the stock and then give the proceeds, Scott would incur $5,000 in capital gains ($10,000 market value minus $5,000 cost basis). After he pays taxes of $1,050 (the 15 percent federal and 6 percent state capital gains tax rate on the $5,000 gain), his gift to the radio ministry and charitable deduction would be $8,950.
By giving the stock to the ministry, instead of selling it first, Scott can claim a charitable deduction of the full market value of the gift ($10,000). The ministry can then sell the stock and use the full proceeds ($10,000) for their radio broadcasts. And since a gift to the ministry is not a sale, Scott will not owe any capital gains tax on the transaction.
Scott's tax deduction for his charitable gift of stock shares was $4,100. When he subtracted that from his original cost for the stock, he realized it actually cost him only $900 to provide a gift worth $10,000 to the Lord's work! The process, listed here, was fast and easy. Scott was so excited about his ability to give more for less that he determined to make giving stock his regular method of charitable giving.
|ILLUSTRATION||Sell Stock & Give Proceeds to GFA||Give Stock Directly to GFA|
|Original cost of stock||$5,000||$5,000|
|Amount of appreciation (gain)||$5,000||$5,000|
|Capital gains tax||$1,050||0|
|Amount of gift to GFA||$8,950||$10,000|
|Tax savings from charitable deduction*||$3,670||$4,100|
|Less capital gains tax||-$1,050||0|
|Actual tax saved||$2,620||$4,100|
|"Cost" of giving gift||$2,380||$900|
|(original cost less tax saved)|
|*Assumes 35% federal and 6% state tax|