Facts: Several years ago, you bought 10 shares of Surprise Corp. at $10. Today, each is worth $100 – your $100 investment has become $1,000. Today, you want to make a $1,000 donation to your favorite Qualified Organization charity. Two different approaches (shown below as Plan A and Plan B) produce very different results. We suggest you go with Plan B!
Plan A: If you sell the 10 shares and give the net proceeds to charity,
- You receive $1,000 (before commissions).
- You have a $900 taxable capital gain.
- You pay $180 in taxes (using an estimated combined Federal and state tax rate of 20%).
- You net $820.
- You add $180 and make your $1,000 donation.
- You do good and receive a $1,000 charitable deduction — at a cost to you of $1,180 plus commissions.
Plan B: If you give the shares directly to the charity,
- You do good and receive a $1,000 charitable deduction — at a cost to you of $1,000.
- Note: When the charity sells the shares, it pays no taxes on the capital gain.