The Stock Transfer Strategy: Give More, Pay Less Tax

TAX STRATEGY 

The Stock Transfer Strategy: Give More, Pay Less Tax  

A lesser-known tactic to   benefit   your church or favorite non-profit — without writing a check.  

Instead of donating cash, transferring shares of stock or mutual fund shares directly to a non-profit can save you thousands in taxes — while maximizing the gift to your organization.   Here’s   how it works.  

Illustration 1: The Doe Family  

John and Mary Doe have invested in IRA and non-IRA accounts for over 30 years. Thanks to strong long-term market performance,   they’ve   accumulated substantial capital gains. Their church has launched a special funding project, and   they’d   like to donate $20,000 —   Over the years they have accumulated a sizable investment account outside of their IRA’s. They would like to give from that account which is fully invested in stocks and mutual funds.   

How can they make the donation without selling and triggering a large capital gain tax bill?  

Their non-IRA joint/trust account is fully invested in stocks and mutual funds. How can they make the donation without selling and triggering a large tax bill?  

How the Transfer Works  

If the church has a brokerage account — which most large churches do — John and Mary can ask their financial advisor to transfer shares from one or more of their stock or mutual fund holdings equal to $20,000 in value directly into the church’s account. This transaction typically takes about a week.  

The church receives the shares, sells them within its own account, and deposits the proceeds into its bank account.   Since the church is a   non-profit   they pay no tax on the sale of the stock/mutual fund shares.  

Illustration 1: Tax Benefit Comparison  

Based on a $20,000 donation with a cost basis of $5,000, for a California resident subject to combined taxes of approximately 27%:  

By transferring shares directly, John and Mary avoid all capital gains, state income, and net investment income taxes entirely.  

The church receives the full $20,000 — not $1 6,355   — and John and Mary   retain   a $20,000 charitable tax deduction.  

Illustration 2: A Higher-Income Couple  

This second example shows the impact for a married couple with combined income over $250,000 per year. At this income level, their stock sale would be subject to three layers of federal and state taxation:  

Assume this couple would also like to donate $20,000 worth of appreciated stock to their church.   The shares were purchased for $5,000, creating a $15,000 capital gain.   Here is what the two approaches look like:  

By transferring the shares directly, this couple avoids $4,215 in taxes and the church receives $20,000 instead of $15,785.  

The $4,215 in avoided taxes   represents   a 21% larger gift to the church — simply by changing the method of giving.  

Getting Started  

Check with your church or favorite non-profit about this tactic. You may be surprised to find they already have a brokerage account set up for exactly this purpose. If not,   it’s   straightforward for them to work with a brokerage firm to   establish   one.  

Talk to your financial advisor to   initiate   the transfer — and keep more of your donation where it belongs: with the people   you’re   trying to help.  

This article is for informational purposes only and does not constitute tax or financial advice. Please consult a qualified tax advisor or financial professional before making charitable gifts involving securities. 

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. Cetera Wealth Services, LLC exclusively provides investment products and services through its representatives. Although Cetera does not provide tax or legal advice, or supervise tax, accounting or legal services, Cetera representatives may offer these services through their independent outside business. This information is not intended as tax or legal advice. The examples shown are a hypothetical illustration for educational purposes only and does not represent the results of any actual client. The figures and clients described are entirely fictitious and should not be relied upon as a prediction of future performance.

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