Do you donate to charitable organizations? If so do you usually make your donation in the form of cash? If this is the case you might want to consider donating some stock investments to your favorite organization this year instead.
When you donate appreciated stock to a charitable organization you are allowed to deduct the full fair market value of the investment at the date you make your donation. This means that you not only realize the tax savings of your donation but you also avoid paying tax on any gain you have in the investment.
Here is an example of how this works. Say you purchased a stock for $1000 and today it is worth $2000. If you donate the appreciated stock directly you get to claim a deduction for $2000. If you sold the stock first you would have to pay tax on the gain of $1000. Assuming you are in the 25 percent tax bracket and the gain is short term you would net only $1750 to donate and deduct. If you already plan on making a donation you might want to consider donating appreciated stock and holding onto your cash instead.
If you want to take advantage of this tax savings strategy there are a couple of things to remember. First you have to complete the transfer of ownership before Dec. 31 of the year you want to claim the deduction. Second this strategy works only with investments held in regular taxable accounts. For more information about donating appreciated stock reach out to us online.