When making donations it’s important to consider whether you should be donating cash or stock to charity.
In this week’s video, Tom explains the differences between public and private charities. As well as, answering whether you should donate cash or stock to charities.
If you’re in the gifting mood this holiday season, be sure to check this one out to make sure you’re making the most of your gifts to charity.
Check out last week’s video to see how you should gift wealth to individuals!
Donating Cash or Stock to Charity – Full Transcript
**For a downloadable PDF version of this transcript, click here!**
Tom Mullooly: In episode 271, we talk about, can you donate cash to a charity. Stick around.
Tom Mullooly: Welcome to the Mullooly Asset Show, I’m your host, Tom Mullooly, and this is episode number 271. Two of the questions that we get asked quite a lot are: “Hey, can I make a gift of cash to a charity?”
That’s true in 2021. Prior to that and very possibly in the future, we’re going to see you could deduct cash gifts of up to 50% of your adjusted gross income. That’s why they’re called 50% charities.
The Tax Act of 2017 raised this 50% to 60% temporarily. Now that’s cash gifts. And I want to say that there are chapters and chapters and chapters of the IRS code that explain this. I’m boiling this down to a four-minute video. So I am massively simplifying this. And of course it’s not tax advice.
Tom Mullooly: But what about giving stock? What about giving a gift of appreciated property to your favorite charity? Understand that the fair market value of your gift can exceed 30% of your adjusted gross income that year. It’s a big deal. It’s important to know. So now there’s always a caveat. There’s always an unless.
That is the unless the client decides to use cost basis, instead of fair market value. If that’s the case, then they can use cost basis and they can go up to 50% of their AGI. It’s pretty rare to see someone use cost basis over fair market value, but it’s always worth a look when you’re going to make a gift of these kind of securities.
Tom Mullooly: Now in the previous video, which we’ll link to in the ship notes, we talked about making gifts to individuals and why we think it’s a good practice to make cash gifts to individuals.
The reason why we say that is because if you give an individual appreciated stock, at some point in the future, they’re going to sell that stock and it’s, they have your cost basis in the stock.
So suppose you put $10,000 into a stock and years later it’s worth $100,000. You make a gift to an individual. Their cost basis is $10,000. They’ve got to pay taxes on $90,000 of gains.
However, if you made the same gift to a public charity, you’re going to find that they can sell it and get fair market value for it without any kind of tax, because they’re a nonprofit organization and you get a deduction for the fair market value of your gift.
Tom Mullooly: You need to take time when you’re thinking about kind of gifts to make and how they’re structured and how it all fits in with your adjusted gross income. That’s the message for episode 271. Thanks again for tuning in.
**Please consult with your tax preparer before deducting any gifts to ensure that your are meeting the criteria for the deduction**