November 19, 2024
Dear Investors and Friends,
In our newsletters, we typically focus on fixed income products, investment strategies, market outlooks, and managing risk effectively. However, with the season of giving upon us, we’re taking a slight departure to discuss an opportunity that can benefit both your portfolio and your charitable impact: donating appreciated stock instead of cash.
This strategy is not only a smart way to make a meaningful contribution but also offers unique tax benefits. If you’re considering a charitable gift this year, here’s why appreciated stock may be worth a closer look.
Why Donate Stock Instead of Cash?
When you donate cash, your charitable deduction is straightforward. However, gifting appreciated stock offers unique tax benefits — especially if you plan to hold or repurchase the same stock to keep it in your portfolio.
- Eliminate Capital Gains Tax
By donating appreciated stock that you’ve held for more than a year, you avoid the capital gains tax that would apply if you sold it outright. This means that more of the stock’s value goes directly to the charity, allowing your contribution to make a greater impact. - Get the Full Deduction
With stock donations, you’re generally eligible to deduct the fair market value of the stock at the time of the gift, just as you would with a cash donation. This allows you to maintain the same level of charitable deduction, but with added tax benefits. - Increase Your Stock’s Basis with a Repurchase
If you want to keep the same stock in your portfolio, consider repurchasing the same stock with cash. This move resets your cost basis to today’s market price, potentially reducing capital gains on future sales. In other words, you get a higher basis without triggering capital gains tax.
An Example: How It Works
Suppose you’re considering a $10,000 gift. You have a stock worth $10,000 with a basis of $2,000. By donating the stock instead of cash, you avoid capital gains tax on the $8,000 of appreciation, which could save you as much as $1,200 in capital gains tax (assuming a 15% rate). You still qualify for the full $10,000 deduction, just as you would with cash.
After donating, if you repurchase the stock with $10,000 in cash, you now own the same number of shares but with a cost basis of $10,000. This higher basis can help reduce your tax liability if you sell the stock in the future.
Why Consider This Strategy Now?
As tax season approaches, it’s a great time to review your portfolio for appreciated assets that may be suitable for charitable giving. With a few strategic adjustments, you can maximize the impact of your gifts while reducing your tax burden.
Giving smartly allows you to support the causes that matter to you while managing your long-term investment strategy. If you have any questions about this approach, Mike and I are happy to discuss how it might fit into your financial goals.
As always, we remain dedicated to finding strategies that enhance your financial success and align with your values. Please feel free to reach out with any questions or to discuss how tax-efficient giving might fit into your plans this season,
Warm Regards,
David and Mike
Disclaimer
Roosevelt Capital Management LLC is a registered investment adviser. The information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.
Past performance is not indicative of future performance. Principal value and investment return will fluctuate. No guarantees or assurances that the target returns will be achieved, or objectives will be met are implied. Future returns may differ significantly from past returns due to many different factors. Investments involve risk and the possibility of loss of principal.
While all the values used in this report were obtained from sources believed to be reliable, all calculations that underly numbers shown in this report believed to be accurate, and all assumptions made in this report believed to be reasonable, Roosevelt Capital Management LLC neither represents nor warrants the values, calculations or assumptions and encourages each prospective investor to conduct their own review of the audits, values, calculations and assumptions.