Most of you know, if you give money to good works (or tax-deductible works, anyway), you can save a lot of money in taxes by giving appreciated securities instead.

Not only do you get the tax deduction for the gift, you avoid the capital gains tax that otherwise would have been due. In the case of a stock you bought for $4,000 that’s now worth $13,500, you could save $2,660 (28% federal tax on the $9,500 gain), and possibly some local income tax savings as well, by giving the stock instead of cash.

But, as I’ve noted elsewhere, be careful:

  • Be certain to have your broker transfer the stock to the charity before she sells it and sends the charity the proceeds. If the stock is held in your name when it’s sold, you pay the tax.
  • Be certain you’ve held the shares (or the building, or the van Gogh) at least a year and a day, or the IRS will allow you to deduct only your original cost.

Of course, this doesn’t make sense for small gifts. Apart from the hassle, the commission a charity would have to pay to sell $250 or $500 worth of Microsoft could easily eat up 10% or 15% of the gift. But — as I’ve also noted elsewhere before — if you’re someone who likes to give $250 or $500 a year to several different charities, there’s a solution:

Open an account with the Fidelity Investments Charitable Gift Fund (800-682-4438). Transfer your $13,500 worth of stock to that account, for which you get an immediate charitable deduction, just as if you’d given it to the Red Cross. Then, from time to time, mail or fax instructions to Fidelity. They’ll send out checks on your behalf as small as $250, investing the balance in the meantime in your choice of four different kinds of funds — so you may have even more to give away than you planned.

It’s the poor man’s way to set up a charitable foundation — the Ford Foundation, the Rockefeller Foundation, and now Your Foundation. Almost.

Tomorrow: Charity and Your IRA


Comments are closed.