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Health & Fitness

Supercharge Your Tax Savings with Donations of Appreciated Assets

Supercharge Your Tax Savings with Donations of Appreciated Assets

By: Miriam Eisenbach

 

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With the new tax rates in 2013 taxpayers are trying to find the most advantageous way of helping their favorite charitable organization while reducing their tax liability. Philanthropic taxpayers can enjoy a significant tax benefit by donating their long term appreciated property (i.e. stocks, mutual funds and other investments) directly to their charitable organization.

 

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The tax rates have increased in 2013, raising the highest tax bracket at a tax rate of 39.6%, with capital gains increasing to 20% for top earners. In addition there is the new 3.8% Net Investment Income Tax on investment type income and gains.

 

To demonstrate the potential of this tax savings, let’s take an example and compare different options. If a taxpayer would like to donate $10,000 to their favorite charitable organization and they also have an appreciated long term asset worth $10,000, they can donate the asset and get a deduction, plus avoid the tax on the capital gain as well as the net investment income tax.  The following example illustrates a taxpayer’s sale of their appreciated asset and donating the proceeds to their favorite charity, a donation of $10,000 in cash or the donation of a long term appreciated asset directly to the organization. 

Donation of Proceeds from Long Term Appreciated Stock vs. A Cash Donation vs. Long Term Appreciated Stock Donation

Donation of Proceeds from Long Term Appreciated Stock *

 

 

Value of Donation

10,000.00

 

 

Tax savings from charitable donation (39.6% tax bracket)

3,960.00

20% capital gains tax

(1,200.00)

Net Investment Income Tax (3.8%)

(228.00)

 

 

Total Tax savings

2,532.00

*Original purchase = $4,000, capital gains = $6,000

 

 

 

Cash Donation

 

 

 

 

 

 

Value of Donation

10,000.00

 

 

Tax savings from charitable donation (39.6% tax bracket)

3,960.00

Tax savings from elimination of 20% capital gains

N/A

Tax savings from elimination of Net Investment Income Tax (3.8%)

N/A

 

 

Total Tax savings

3,960.00

 

 

 

 

 

 

 

Long Term Appreciated Stock Donation *

 

 

 

 

Value of Donation

10,000.00

 

 

Tax savings from charitable donation (39.6% tax bracket)

3,960.00

Tax savings from elimination of 20% capital gains

1,200.00

Tax savings from elimination of Net Investment Income Tax (3.8%)

228.00

 

 

Total Tax savings

5,388.00

*Original purchase = $4,000, capital gains = $6,000

 

 

 

 

Obviously, the most advantageous option would be to donate the appreciated stock directly to your charitable organization of choice. However, you would still receive a nice tax break with a cash donation. As illustrated above, it is best to avoid selling an appreciated stock and donating the proceeds.  However, if you plan to donate an asset that decreased in value, it would be more advantageous to sell the asset, take the loss and donate the proceeds.

 

Always make sure your charitable donations are to a qualified charitable organizations (501c(3)). The link below can be used to check the status of your favorite organization.

http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check

 

Philanthropic taxpayers should be aware of limitations of such donations. Donations of appreciated assets to a qualified charitable organization are limited to the 30% of the taxpayers’ AGI (Adjusted Gross Income) to public charities and 20% of their AGI to private foundations. Any unused charitable deduction can be carried forward 5 years.

 

There are certain limitations based on your income level. Please contact me at meisenbach@bkl-cpa.com to better understand how the new tax law changes and limitations can impact your charitable and financial plans as well as your tax situation to supercharge the benefits of your generosity.

 

 

 

 

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