No matter how frequently you remind clients to pause before they automatically reach for the checkbook to make their charitable gifts, many clients still give cash. As an attorney, accountant, or financial advisor, you are well aware that giving long-term appreciated assets is often one of the most tax-savvy ways your clients can support their favorite charities. Nevertheless, it’s sometimes hard to convey that message to clients with words that stick. Next time, consider using illustrations to help clients see the benefits.
Below are two simple examples* to help you show your clients the benefits of giving appreciated stock.
Sally and Bob Jones give $100,000
Sally and Bob Jones plan to give $100,000 to their donor-advised fund at the Community Foundation to organize all of their giving for the calendar year. Let’s assume Sally and Bob have a combined adjusted gross income of $600,000, which lands them in the 35% federal income tax bracket. If they gave $100,000 in cash to their donor-advised fund, they could realize an income tax savings, potentially, of $35,000.
What if instead of giving cash, Sally and Bob gave highly-appreciated, publicly-traded stock, valued currently at $100,000, to their donor advised fund. Let’s assume they’ve been holding the stock for many years, and the shares have a cost basis of $20,000. Not only are Sally and Bob eligible for a potential income tax deduction that will save them up to $35,000, but they have also potentially avoided $12,000 of capital gains tax that they would have owed if they’d sold the stock (using a long-term capital gains tax rate of 15%). So, it is easy to see why Sally and Bob should consider giving highly-appreciated stock instead of cash.
Jenny and Joe Smith give $1 million
Jenny and Joe Smith plan to give $1 million to community causes this year. They will do that by adding $500,000 to their donor advised fund at the Community Foundation, which in turn they will use to support their favorite nonprofit organizations. They will also be making a $500,000 gift to a changing needs fund at the Community Foundation to help address the region’s changing needs over time for generations to come. Let’s assume that Jenny and Joe are in the highest federal income tax bracket because they earn multiple seven figures. If they were to give $1 million in cash, they could save, potentially, up to $370,000 in income tax. If they gave publicly-traded stock instead of cash, assuming a $200,000 cost basis in stock valued currently at $1 million, they would still potentially save up to $370,000 in income tax, and they would also potentially avoid $160,000 in capital gains tax (based on a long-term capital gains tax rate of 20%).