Advantages of Donating Stocks and Mutual Funds

Donors choosing to make gifts to the Botanical Society of America using long-term appreciated stocks and mutual funds are likely to realize attractive tax advantages associated with such gifts.The benefits available to you when making a contribution of stock or mutual funds may include:

• Eliminating federal and state capital gains tax;
• Receiving an income tax deduction (federal and most states) for the full market value of the gift (you must itemize deductions on your tax return and have held the assets one year or longer);
• Making a larger gift at a lower original cost to you.

Remember, before you make a gift of appreciated securities, you should consult your financial planner or tax advisor to determine how the potential tax advantages described here apply to your specific situation.

Here's an example of how it works

Let's say that several years ago you purchased a stock/mutual fund for $2,000. Today its value is estimated to be $10,000 which, if sold, would realize a capital gain of $8,000. Rather than selling the asset, you donate it directly to the Society. This has advantages for both of us. You're able to realize the tax advantages associated with transferring a stock/mutual fund to a charitable organization and we could, according to the Tax Code, be permited (as a "Section 501(c)(3)" charitable institution) to sell the asset or move it into our endowment portfolio without having to recognize the capital gain.

As you always planned to do at some point in time, you donate the $10,000 of stock noted above directly to BSA. You doing so you find you get several significant benefits. First, you avoid paying federal capital gains tax of $1,200 ($8,000 x 15% = $1,200). And let's assume you live in one of the states that also taxes capital gains (here in Missouri it is 6%). Assuming a 6 percent state capital gains tax rate*, you would avoid an additional $480 ($8,000 x 6 percent = $480) in taxes. This results in a total capital gains tax savings of $1,680.

Let's further assume you fall in the 28 percent federal income tax bracket. By itemizing your deductions, you are eligible to take a $10,000 charitable income tax deduction that saves you an additional $2,800 ($10,000 x 28 percent = $2,800) of federal income tax for the tax year you made the gift. If your state allows you to deduct charitable gifts, you can also save on your state income taxes. Assuming a 6 percent state income tax rate, this results in an additional savings of $600 ($10,000 x 6 percent = $600) for you, the second benefit.

In this hypothetical example, by making a stock/mutual fund donation, you are able to make a $10,000 gift that generates a total tax savings of $5,080. A direct contribution of $10,000 in cash would have generated an income tax saving of $2,829. And if you were to sell the securities first and then donate what's left after paying taxes, you would have only been able to donate $8,320 ($10,000 less $1,200 + $480), which would generate income tax savings of $2,829 ($2,330 + $499).

Donating long-term appreciated securities is clearly the tax-efficient way to contribute to the BSA.

The table below summarizes the example:

Important facts to remember:

• You must itemize your tax return in order to deduct a charitable donation.
• You must have owned the securities for at least one year before donating them or you will be limited to a deduction of your original purchase cost of the securities.
• You may take a deduction valued up to 30 percent of your adjusted gross income. If the deduction is greater than 30 percent, you may carry any unused deduction forward for up to five years into the future until it has been fully used.

We encourage you to consult your financial planner or tax advisor who can assist you in evaluating the tax advantages available to you when making a donation of appreciated securities.