There are many ways people choose to contribute to the SAISD Foundation’s core mission. From speaking to students about your career to making monetary and in-kind contributions, you can show your support in a myriad of ways. Here, we will discuss how some of your fellow supporters have chosen to contribute to the SAISD Foundation’s efforts through the donation of stock and how that can benefit both the SAISD Foundation and you, the donor.
Why Should I Donate Stock?
According to the Internal Revenue Service (IRS) guidelines, you can donate cash, property, and appreciated shares of stock to the public charity of your choice for tax deduction purposes. While cash donations are the most popular, one of the most impactful and tax efficient ways to contribute to a charity or non-profit entity is through the donation of stock. By donating stock that has 1) appreciated in value and 2) has been held for more than a year, you are effectively contributing 24% more than if you sold the stock and made a cash donation for the same amount. As shown in the example below, the reason is simple: by donating stock, you can avoid Federal capital gains taxes of 20% as well as the Medicare surtax of 3.8%, leading to a higher after-tax contribution.
|Original Cost||$ 5,000||$ 5,000|
|Current Fair Market Value||$ 10,000||$ 10,000|
|Taxable Gain||$ 5,000||$ 5,000|
|Capital Gains Tax||20.00%||$ 1,000||$ –|
|Medicare Surtax||3.80%||$ 190||$ –|
|Net Charitable Contribution||$ 3,810||$ 5,000|
As long as you have held the stock for a year, you will receive an income tax deduction for the full market value (FMV) of the gift if you itemize deductions on your federal tax return. If you donate stock that has been held for less than a year, you will be limited to a deduction of your original purchase cost of the stock or mutual fund. Keep in mind that the IRS does mandate some limitations. Deductions for appreciated stock is limited to (max) 30% of adjusted gross income (AGI) in the year of the donation, with a 5-year carry-forward for unused deductions.
How Can I Donate?
You can donate your stock directly to the SAISD Foundation, much like Mike and Louise Burke did this summer when they donated $10,000 in Amazon stock. This process is fairly straightforward and involves you or your financial advisor filling out paperwork to transfer your donated shares directly to Frost Bank or Fidelity, both of which serve as custodians for the SAISD Foundation. In addition, you can also place your shares in a donor advised fund (DAF), which was highlighted in a previous blog post. (HERE) “It is an honor and privilege for Louise and I to support the fabulous leadership of Superintendent Pedro Martinez, the enlightened governance of the SAISD board, and the educational needs of very deserving students,” Mike Burke shared.
Should I Donate Shares with High or Low Basis?
If you have a very low basis stock position that you still want to maintain in your portfolio, you can donate that low basis block of shares and buy new shares to reset your cost basis at the current, higher price. This works best if you are donating shares that have the lowest basis currently. Since this is a charitable contribution, you avoid the capital gains and the wash sale rules do not apply (i.e., you don’t have to wait 30 days to re-purchase). By doing this, you maintain the same value in your portfolio, while giving yourself a “step-up” in basis, without having to recognize a gain. This will reduce your future capital gains tax exposure should the stock continue to grow in value.
When It Is More Beneficial To Donate Cash?
If you are holding a stock that is trading for less than you paid for it, it’s usually better to sell first before donating the cash to charity as this allows you to take the loss for tax purposes. In addition, it may be less beneficial to donate appreciated stock is if your income is low. The deduction for donations of appreciated stock to public charities is limited to 30% of your AGI (Adjusted Gross Income) whereas cash donations are subject to a 60% of AGI limitation. As highlighted above, any amount over the 30% threshold would be carried over for a maximum of 5 years. This is an important consideration when deciding whether to donate cash or shares of stock.
If you would like to show your support for the SAISD Foundation and are interested in donating some shares of stock to the SAISD Foundation, please contact either Judy Geelhoed at firstname.lastname@example.org or Juan Landa at email@example.com or at 210-694-4325 – Juan Landa is a Managing Director at Avalon Advisors, LLC and the SAISD Foundation’s Investment Manager.