Giving 100 Percent: Why Some Donors Choose to Give the Gift of Stocks to Regional One Health Foundation
Giving to charity has always been a meaningful way to make a difference in your community, but for some donors, giving back can also be a savvy financial decision that reduces their tax burden. “People who have had significant gains in their stock portfolios can benefit most from donating some of those shares to charity,” says Lee Harper, board member of Regional One Health Foundation and Head of Client Portfolio Management at Southeastern Asset Management.
“The minute you’re thinking about selling a stock that has had a large gain, there’s an opportunity to give 100 percent of the value of that stock to charity, without worrying about the capital gains tax.”
According to the IRS, individuals must pay capital gains taxes when they sell an asset at a profit. Most often, the capital gains tax applies to investments in appreciated stocks and bonds that have gone up in value, but it can apply to any kind of investment, if you’re able to sell that asset for more than you initially paid. Capital gains will be taxed at a 15 percent or 20 percent rate in 2015, depending on your household income.
Appreciated stocks, bonds, mutual funds and other securities make excellent charitable gifts and can provide the donor with welcome tax benefits. If you use such assets to fund a charitable gift, you may completely avoid the capital gains tax while enjoying a federal income tax deduction for the full value of the securities.
“If you sell the stock first and then give the money to charity, you will have to pay capital gains tax on the value of those shares, which ultimately reduces the amount you can give to charity,” Harper says. However, because charities like Regional One Health Foundation are protected under the tax code as a 501(c)3 non-profit organization, they are tax exempt, so these charities do not have to pay the capital gains tax when they sell donated shares of stock. “If you just give those shares directly to a charity,” Harper continues, “the charity will receive 100 percent of their value.”
“If you’re going to do this,” Harper quickly adds, “you should think about how that impacts your overall portfolio exposure. After a six-year bull-market run, many people have seen some pretty substantial gains in their investments. As you are thinking about how to rebalance your portfolio, you can get more bang for your buck by thinking about this process in tandem with your plans for giving to charity.”
“When our family is making a large donation to charity,” Harper says, “this is the method we use consistently.” In fact, the Harpers recently donated appreciated mutual fund shares to Regional One Health Foundation.
“WE DONATED BECAUSE OF THE VITAL AND EXCELLENT SERVICES THAT REGIONAL ONE PROVIDES FOR OUR COMMUNITY. THERE’S NO OTHER PLACE IN THE REGION THAT OFFERS THIS LEVEL OF CARE, AND WE NEED TO ENSURE WE HAVE THESE BEST-IN-CLASS SERVICES AVAILABLE IN OUR AREA WHEN WE NEED THEM MOST.”