Taxpayers are allowed a charitable deduction generally equal to the fair market value of the security and avoid paying capital gains tax on the unrealized gain. Thus, they are potentially giving more to the charity than if they had liquidated the asset and donated the cash net of taxes. Taxpayers must itemize in order to claim a charitable deduction.
When deciding to make a direct gift of stock or cash to the Loudoun Symphony, remember that your deduction may be limited by your income. Because Loudoun Symphony is a public charity, cash gifts are limited to 60% of AGI while stock (held for more than 12 months) is limited to 30% of AGI. If your deduction is limited by your income, excess deductions may be carried forward for up to five additional years. If you are looking to maximize your contributions, your tax advisor can assist with determining whether these limitations will apply and how best to fully utilize your deduction, if limited.
Example of potential savings realized
Assume an individual with a marginal tax bracket of 37% itemizes deductions makes a $10,000 gift to the Loudoun Symphony. Also, their long-term stock has a cost basis of $2,000 makes a fair market value of $10,000 on the date of transfer.
A $10,000 cash gift will result in $3,700 of income tax savings ($10,000 x 37%).
A $10,000 stock gift will result in $3,700 of income tax savings ($10,000 x 37%), plus $1,600 of capital gains savings ($8,000 x 20%), and $304 of Medicare Tax on Investment Income Savings ($8,000 x 3.8%).
How do you make a gift of appreciated stock to Loudoun Symphony?