In this month’s Tax Tips, Kevin Hickman and Christina Manis answer the question, “What is a good tax saving strategy I should be considering right now?” Click here to see the video.
With the stock market at record highs, one strategy to consider is the donation of stock to a qualified charity.
When a taxpayer donates appreciated stock, where you would normally have a long-term capital gain, you will be able to deduct the fair market value of the stock as an itemized deduction.
The beauty of the donation is that you deduct the higher value of the stock and avoid paying tax on the unrealized gain. For example, if you purchased 100 shares of Apple at $100 per share and it is selling at about $400 per share, your deduction would be $40,000 and you would avoid paying tax on the $30,000 gain.
If you were to sell the stock then make the same donation, the gain would be included in your Adjusted Gross Income and would likely result in the limitation of certain itemized deductions and possibly make you subject to the Net Investment Income Tax.
This strategy avoids both of those potential negative consequences and would likely give you a better bottom line tax result.
There are some limitations and specific rules related to the donation of stock. Publicly traded stock values are based on market quotes but closely-held stock may need to be supported with an appraisal.
If you are inclined to make substantial charitable donations during the year and have appreciated stock, you may want to consider this strategy. Since this is an election year and market conditions may change, this may be a strategy to consider now as opposed to waiting till year end.