For investors who are charitably inclined, one giving option is making their donations using shares of appreciated securities.
Whether using shares of individual stocks, ETFs or mutual funds, this can be a good strategy for financial advisers to discuss with their clients who hold appreciated securities inside taxable accounts.
Donating appreciated securities allows investors to contribute the market value of the security while eliminating any capital gains taxes that would be due if they were sold and the investor then donated the cash proceeds. This makes using appreciated securities a tax-efficient approach to charitable giving.
For investors who have positions with a low cost basis in securities like Apple (AAPL) – Get Report, Microsoft (MSFT) – Get Report, Amazon (AMZN) – Get Report or others that have seen significant amounts of appreciation in recent years, the embedded capital gains can be significant.
The market value of the appreciated securities on the day of donation is eligible for a charitable deduction for tax purposes for those who can itemize deductions.
If a client normally wouldn’t be able to itemize, it can make sense to bunch the contributions they might make over several years into a single year so they can itemize their donations in a given year. This strategy might be particularly useful for 2020.
Normally, charitable deductions are limited to 50%; 30% or 20% of an investor’s adjusted gross income. For 2020, the CARES Act allows charitable deduction of up to 100% of their AGI. For those clients who wish to make donations, who have one or more holdings where they are sitting on unrealized capital gains and who can afford to do so, 2020 might be a good year to donate more than they might ordinarily.
If their AGI is going