Making Appreciated Gifts
A friend of mine recently told me about his love affair with Nike, which was his very first stock purchase. He’s kept most of the footwear and apparel company’s shares through thick and thin. Along with Coke and McDonalds, it has become one of the premiere global brands. Nike turned out to be a wonderful investment for him.
Anyone lucky (or smart) enough to have acquired Nike stock when the company first went public in 1980 has done well. One of them is Caroline Davidson. She is the designer of the original Nike “Swoosh” logo, and received 500 shares of NKE stock in payment. She never sold her shares. Through stock splits over the decades, it has grown to somewhere in the neighborhood of 12,000 and 15,000 shares—with a value of around $1 million. Not to mention, the dividend is $0.84 per share.
My friend is a charitable fellow, so a number of years ago he decided to open up a Donor Advised Fund. He set his sights on funding it with $20,000.
But first he put on his gift-planning hat. He remembered hearing that it’s usually better to contribute appreciated stock than to write a check for the same amount.
His stock had appreciated ten-fold since first acquiring it. He reasoned that he could sell $20,000 of his stock and use the proceeds (minus the sales commission) to open his fund. But then, at tax time, he would owe capital gains tax on the $18,000 of appreciated growth. Applying the 15% percent capital gains tax rate for his income tax bracket, he would have owed $2,700 to IRS.
He also knew that his charitable deduction could offset that amount, because in his 28% federal income tax bracket, a $20,000 gift would save him about $5,600 in income tax. Still, he asked himself, why incur the capital gain and extra tax at all?
This reminded him why it is so smart to give appreciated stock instead of cash. Two benefits are better than one!
Because the sponsor of his Donor Advised Fund was a qualified charity, he decided to donate some of his long-term appreciated stock instead of cash, get the market value charitable deduction for the gift, and avoid paying the capital gains tax.
Transferring the stock was easy. My friend and his broker were given delivery instructions. The charitable transfer was completed almost immediately, his gift was valued and documented for tax purposes, and the stock was sold—with all proceeds (undiminished by capital gains taxes) used for his newly-established Donor Advised Fund.
How about you? Do you have appreciated assets in stocks or bonds that could be used to make a smart gift to charity? You and your professional advisors should assess when it makes sense to make such tax-wise gifts and how to do it.
To learn more about using appreciated securities for your charitable gifts, just give us a call at 614-338-2365 or email me at firstname.lastname@example.org. We are here to help you any way we can.
Jackie Jacobs is the Executive Director of the Columbus Jewish Foundation, the Central Ohio Jewish community’s planned giving and endowment headquarters.