Highly-appreciated stock: If your client missed the ideal window, it’s still not too late to support charity

Here’s a hypothetical situation to consider. During a routine check-in meeting, your client casually mentions that their employer, a local company, was just acquired. The client and dozens of fellow employee shareholders are now flush with cash. “I’d like to use some of the money to give to charity,” the client tells you. “Let’s talk about establishing a fund at the Community Foundation.”

Immediately, you mentally calculate the capital gains taxes your client could have avoided if they had given some of those shares to a fund at CFHZ years ago when the company was clearly growing fast, making it a natural target for acquisition or IPO, but well before an exit was in the works.

There are still options to help your client fulfill their charitable intentions by establishing a Donor Advised, Designated Nonprofit, Unrestricted or other type of fund at CFHZ. Your client’s gifts to the fund qualify for a charitable tax deduction in the current tax year, helping to offset the income from the sale of the shares.

While hypothetical, this situation occurs and is a good reason to regularly remind your clients about their options for making gifts to charity and the tax benefits of each. Giving cash to a public charity, which is what your client in this situation will be doing, is always a viable option. The general rule is that your client can deduct cash gifts to up to 60% of their adjusted gross income (AGI) in any given year. While this may not completely offset large gains from the sale of the stock, it will help to reduce the client’s taxable income.

Giving appreciated stock, which is what you may wish your client had done, is a very tax-effective method of supporting public charities. Clients who donate stock outright may avoid all capital gains tax that would be levied on a sale of the stock if it were sold prior to making the donation. Even with the 30% of AGI limitation imposed on gifts of highly-appreciated, long-term capital gains property to a public charity, your client likely will still come out ahead because their AGI is presumably a lot lower than it will be in the year of a future stock sale.

We always encourage donors to first seek the advice of their legal, financial, or tax advisors when considering a gift of non-cash assets. While our team does not offer tax advice, we stay knowledgeable on charitable giving strategies. Please contact Colleen Hill, Vice President of Development & Donor Services, at chill@cfhz.org or by calling 616–994–8853 if we can help you serve your clients.