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. Click here to go to PlayGround’s Stock Donator page. You will be asked to enter the stock code, the number of shares, your information and that of your brokerage. If you have any questions, please contact us.
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. Stock Donator will send a confirmation and acknowledgement via email to you and to PlayGround when the stock gift has been transferred by your broker and deposited into PlayGround’s account, including information on the valuation on the day of transfer. This acknowledgement can be used 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 415-992-6677 or jim<at>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.