Donate Stock or Mutual Funds

Donating appreciated securities – such as stock or mutual funds is a tax-wise approach to providing for families in need. Many donors choose to give gifts to Amigos Hospitalito Atitlán using long-term appreciated stocks and mutual funds due to the attractive tax advantages associated with such gifts.

The benefits available to you when making a charitable contribution of stock or mutual funds may include:

  • Avoiding federal and state tax on the capital gain;
  • Receiving an income tax deduction (federal and most states) for the full market value of the gift if you itemize deductions on your tax return and have held the assets one year or longer;
  • Making a larger gift at a lower original cost to you.

An Example of How Gifting Stock Works*

If you purchased stock for $1,500 several years ago that’s now worth $5,000, and you sold it for a capital gain of $3,500, you could donate it to Amigos Hospitalito Atitlán, who could then, according to the Tax Code be permitted (as a “Section 501(c)(3)” charitable institution) to sell the stock without having to recognize the capital gain.

If you donate the stock directly to Amigos Hospitalito Atitlán, you will avoid paying federal capital gains tax of $525 ($3,500 x 15% = $525). And let’s assume you live in one of the states that also taxes capital gains. Assuming a 5% state capital gains tax rate*, you would avoid an additional $175 ($3,500 x 5% = $175) in taxes. This results in a total capital gains tax savings of $700.

Let’s further assume you fall in the 28% federal income tax bracket. By itemizing your deductions, you are eligible to take a $5,000 charitable income tax deduction that saves you an additional $1,400 ($5,000 x 28% = $1,400) of federal income tax for the tax year you made the gift. If your state allows you to deduct charitable gifts, you can also save on your state income taxes. Assuming a 5% state income tax rate, this results in an additional savings of $250 ($5,000 x 5% = $250) for you.

In this hypothetical example, by making a stock or mutual fund donation, you are able to make a $5,000 gift that generates a total tax savings of $2,350. A direct contribution of $5,000 in cash would generate an income tax saving of $1,650. And if you were to sell the securities first and then donate what’s left after paying taxes, you would only be able to donate $4,300 ($5000 less $525 + $175), which would generate income tax savings of $1,419 ($1,204 + $215). Donating long-term appreciated securities is clearly the tax-efficient way.

Important facts to remember:

  • You must itemize your tax return in order to deduct a charitable donation.
  • You must have owned the securities for at least one year before donating them or you will be limited to a deduction of your original purchase cost of the securities.
  • You may take a deduction valued up to 30% of your adjusted gross income. If the deduction is greater than 30%, you may carry any unused deduction forward for up to five years into the future until it has been fully used.
  • We encourage you to consult your financial planner or tax advisor who can assist you in evaluating the tax advantages available to you when making a donation of appreciated securities.

Transfer your securities by DTC through your broker.

Securities held in certificate form: If your securities are held in certificate form, please contact us for specific instructions on transferring your stock to Amigos Hospitalito Atitlán.

Other ways to give securities: Appreciated securities may also be used to fund gift plans that provide payments for life or a number of years, such as charitable gift annuities or charitable remainder trusts.

Contact information: If you have questions about making a gift of appreciated securities to Amigos Hospitalito Atitlán, please call us at 804-867-7102

*The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties or liabilities. Please consult legal or tax professionals for specific information regarding your individual situation.