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Ask Gordon

Gordon L. Nelson, CPA, CFP® is a planned giving specialist. Want to get your questions answered? Write him or call him at 435.213.9986.

July 2024

 

Dear Gordon,

I’ve heard there are ways I can avoid capital gains on stocks by involving a non-profit organization. Is that true?


Curious Investor

Tallahassee, FL

 

 

Dear Curious,

Absolutely, involving a qualified non-profit can help you sidestep capital gains taxes on appreciated stocks—legally! With stock markets near all-time highs, many investors like you are eyeing their gains and wondering how to protect them from taxes. Here’s a simple way to do it:

Stock Gifting Basics: Donating appreciated stocks directly to a non-profit, like the Fish & Wildlife Foundation of Florida, allows you to avoid paying long-term capital gains tax and maximize your tax deductions. For example, if you bought 100 shares of a stock like Nvidia in 2021 at $15 per share ($1,500 total) and it’s now worth $90 per share ($9,000 total), you’d have an unrealized gain of $7,500. Selling it would trigger capital gains taxes up to 36%, depending on your state. But by donating the stock directly, you avoid those taxes and can also claim a charitable deduction for the full market value.

Benefits of Donating Stocks:

  1. Tax Savings: You avoid capital gains tax and get a charitable deduction.
  2. Support a Good Cause: The non-profit gets more money than if you sold the stock and donated the after-tax proceeds.
  3. Reduce Risk and Concentration: You can diversify your portfolio without the tax hit. And you mitigate the risk of the stock price falling.

Continuing with the above example, by donating shares worth $9,000, you could avoid $2,000 in capital gains tax and save $3,150 in income tax (if itemizing deductions), totaling $5,150 in tax savings.

Charitable Gift Annuities: Another option is funding a Charitable Gift Annuity with your stock. This provides you:

  • Fixed Income for Life: Guaranteed payments to you or a designated annuitant.
  • Tax Deductions: Immediate charitable income tax deduction.
  • Tax-Free Payments: Part of your income may be tax-free.
  • Legacy Support: Your donation supports wildlife conservation in Florida.

Donating appreciated stocks is a win-win: you save on taxes, support a cause you care about, and manage your portfolio wisely. If you have more questions or want to explore this further, click here to schedule a confidential chat with me.

 

Warm regards,
Gordon

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