Photo by Courtney Gerard
Appreciated stock
Donating appreciated stock is an excellent option for donors who would like CAI to benefit from gains made in the stock market while reducing their tax liability . A donation of stock is an easy transaction , and donating appreciated stock held at least one year typically avoids capital gains tax for the donor .
Here ’ s a scenario that demonstrates this : Nora purchased 1,000 shares of ABC 10 years ago at $ 5 per share . ABC stock is now valued at $ 50 per share , making Nora ’ s holdings valued at $ 50,000 . If Nora donates the stock directly to CAI , three things happen : she can deduct her gift from her taxes ; she can avoid paying capital gains tax on the $ 45,000 earnings on the stock ; and she is able to increase the size of her gift to CAI while lowering her overall tax bill .
Qualified charitable distribution
Donating to CAI using a qualified charitable distribution ( QCD ) is another tax-savvy way to support CAI . If you are 70½ years of age or older , you can make a tax-free transfer directly to CAI from your retirement account ( such as an IRA or 401 ( k )) that will count toward your required minimum distribution ( RMD ).
For example , Omar ’ s annual RMD is $ 15,000 . If Omar makes his donation to CAI using a QCD , his taxable RMD income is reduced or eliminated .
SCENARIO 1 : SCENARIO 2 : SCENARIO 1 : SCENARIO 2 :
Nora sells her entire ABC stock holdings , then donates the after-tax proceeds |
Nora contributes her entire ABC stock holdings directly to CAI |
Omar takes a portion of his annual RMD as a QCD |
Omar takes his entire annual RMD as a QCD |
15 % longterm capital gains taxes paid |
$ 6,750 |
$ 0 |
|
Omar ’ s annual RMD |
$ 15,000 |
$ 15,000 |
Contribution to CAI and tax deduction |
$ 43,250 |
$ 50,000 |
Additional amount donated to CAI : $ 6,750 |
QCD contribution to CAI |
$ 10,000 |
$ 15,000 |
Tax savings * |
$ 3,630 |
$ 12,000 |
Additional amount saved on taxes : $ 8,370 |
Result |
Omar ’ s remaining RMD of $ 5,000 will count towards his taxable income . |
Omar satisfied his full RMD by making a QCD ; his taxable RMD income is $ 0 , rather than $ 15,000 . |
* Tax deduction x 24 % tax rate – long-term capital gains paid = tax savings
24 | JOURNEY OF HOPE CENTRAL ASIA INSTITUTE