Charity Time: Why Securities Donations Are Great for Taxes

Source: http://www.flickr.com/photos/teegardin/Though the top tax rates have increased for the country’s biggest earners in 2013, Congress didn’t cut into the deductions individuals can make when donating to charities. That leaves investors big and small with the opportunity to support preferred causes and organizations rather than kicking the money in taxes to the IRS. In fact, donating stock and assets makes greater financial sense in most cases than donating cash. Here are some last-minute moves to consider before January 1.

Security donations deliver more bang

According to Fidelity Investments, investors ought to consider donating securities before writing a check to a favorite charity because of potential tax saving on capital gains. Stocks, bonds, and mutual funds held longer than one year that have gained value would be subject to the new capital gains tax of 20 percent (up from 15 percent) if sold and then donated.

However, if investors simply donated the security, one would be able to deduct the current market value (i.e. including appreciated value) and would not face taxes on that gain. Everyone wins in this situation except the IRS. According to Fidelity, the limit on this type of donation is 30 percent of adjusted gross income, but stocks that have been huge winners — say, Tesla (NASDAQ:TSLA) — should top investors’ lists when it comes to donations.