By L. Michael Gracik, Jr., CPA, Managing Partner
For most taxpayers, the most tax efficient way to make charitable contributions is with the use of appreciated securities. If the security has been held for more than 12 months, taxpayers get a contribution deduction for the full fair market value of the security, and do not have to pay tax on the appreciated gain in the security. Using appreciated securities to make contributions allows taxpayers to conserve their cash. The annual limit for deductions of contributions of appreciated property is 30 percent of the taxpayer’s adjusted gross income (AGI) for contributions to public charities and 20 percent of AGI for contributions to private foundations.
If the taxpayer still wishes to own the security, the taxpayer can repurchase the security at its current market price and take a new tax basis in the security equal to its current market prices.
Currently, stock markets are at all-time highs, and it can be difficult to time the market. However, taxpayers may want to consider making charitable contributions now using appreciated securities and not wait until the end of the year. Making the contributions now, will allow taxpayers to lock in the current high market valuations and lock in the appreciation for the value of their contributions.
If someone does not wish to make contributions to a specific charity now, they should consider using Donor Advised Funds (DAF). The contribution deduction will occur at the time the securities are placed in the DAF. The taxpayer can then use the DAF to transfer funds to the charities of his/her choosing at a later date.
Taxpayers should consult with their investment advisor about the advisability of making contributions now.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.