GIFTS OF STOCK TO PLAYGROUND: A PRIMER FOR PLAYGROUND DONORS
Note: Detailed instructions on transferring shares of securities to PlayGround are included in this article.
Why give appreciated stock instead of available cash?
To avoid paying tax on the appreciation. If you own stock that has increased
in value since you acquired it, it has "appreciated." When you
sell that stock, you realize a type of investment income known as "capital
gain," i.e., the difference between the price you originally paid for
the stock (your "cost basis") and its current market value. On
stock held more than one year, that capital gain is subject to federal tax
at rates of up to 15% (plus applicable state tax).
However, when you contribute the stock to a tax-exempt organization such as PlayGround, you are no longer liable for the capital gain tax. In addition, you may claim a charitable deduction for the current market value of the stock.
Example: A donor wants to make a gift of $10,000 to support
PlayGround. He has stock worth $10,000 which he purchased several years
ago for $2,000. He is in the 28% income tax bracket, his capital gain would
be taxed at 15% if he sold the stock, and he itemizes deductions on his
federal income tax return.
Scenario A: He contributes $10,000 in cash and claims a
charitable deduction of $10,000, which is worth $2,800 to him ($10,000 x
28%). The tax-adjusted cost—i.e., the true economic cost of the gift—is
$7,200 ($10,000 - $2,800). PlayGround has $10,000 to spend on its programs
in support of emerging playwrights.
Scenario B: The donor contributes the $10,000 worth of
stock and claims the same $10,000 charitable deduction, obtaining the same
$2,800 tax savings. In addition, the $8,000 taxable gain disappears; he
will never have to pay tax on the gain, and thus saves $1,200 more in tax
($8,000 x 15%). The tax-adjusted cost of the gift is now $6,000 ($10,000
- $2,800 - $1,200). PlayGround sells the stock with no tax implications
and has $10,000 to spend on its programs in support of emerging playwrights.
To look at it another way: Because of the tax advantages, a donor can afford
to contribute more value in appreciated stock than he would have been able
to contribute in cash.
What if I would like to take advantage of the tax breaks, but don't
want to reduce my stock holdings?
It still makes sense to give stock instead of cash. Let us say you contribute
stock to PlayGround and then purchase more stock to replace what you contributed.
You have realized the tax savings—both income and capital gain—and
your cost basis in the replacement stock is now equal to its current market
value. Thus your potential capital gain tax liability is limited to the
future appreciation of the stock.
May I contribute appreciated stock but retain a stream of income?
Yes. If you use stock or other appreciated property to fund a "life-income"
planned gift, you may achieve similar tax advantages as well as lifetime
income for yourself and/or another individual. For more information about
such gifts, please contact Jim Kleinmann at PlayGround (see contact information
below).
How do I go about contributing stock to PlayGround?
If the stock is held electronically at a brokerage firm, follow the instructions
below. (If you have physical possession of the stock certificate(s), a different
procedure is required. For details, contact Jim Kleinmann.)
1. Decide which stock, and how many shares, you wish to contribute. The
greater the appreciation, the greater the tax advantage to you. However,
other factors may influence your decision about which stock(s) in your portfolio
you wish to contribute.
2. Send a letter of instruction to your stockbroker; see sample
letter of instruction. Describe the stock, indicate that you want to
contribute the shares to PlayGround, and instruct that they be transferred
to PlayGround's account at Banc of America Investment Services, Inc.; the
DTC number is 0226; PlayGround's account number is T16562726.
Note: It is very important to transfer the shares of stock directly
to PlayGround; if you sell the stock and contribute the cash proceeds, you
will have realized the capital gain and therefore be subject to tax.
3. Send a copy of the letter to PlayGround, or call and let us know that
you are making a stock gift. Otherwise it is difficult for us to identify
who contributed the stock.
4. Your part is done. When the stock has been transferred by your broker
and deposited into PlayGround's account, the gift is complete. PlayGround
will then send you an acknowledgement appropriate for tax purposes.
How do I substantiate my charitable deduction with the IRS?
To claim a deduction, you must itemize deductions on your federal income
tax return. Under current law, non-itemizers may not claim charitable deductions.
If the value of your contribution is more than $500, you must submit IRS
Form 8283 with your tax return. Gifts of stock are deductible up to 30%
of your adjusted gross income. If your gift exceeds the 30% ceiling, you
may carry over the excess deduction for up to five additional years.
Determine the value of your charitable deduction by first calculating the
average of the high and low price per share on the date of the gift (i.e.,
the date the transferred stock arrives in PlayGround's account). Then multiply
the average share price by the number of shares you contributed.
How do I go about contributing appreciated property other than
stock to PlayGround?
Other non-cash assets which may be appropriate as charitable gifts include
mutual funds, bonds, and other financial assets; real estate; life insurance;
tangible personal property; business interests. For donors who contribute
such assets, additional IRS filing and substantiation requirements (such
as a qualified appraisal) may apply. For more information, consult your
financial advisor or contact Jim Kleinmann.
For more information contact Jim Kleinmann, President at PlayGround, at 415-314-8541 or jim@playground-sf.org.
The information on this site is not intended as legal, tax or investment
advice. For such advice, please consult an attorney, tax professional or
investment professional.
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