You may be able to save on taxes by donating stock directly to the church. Here is how it works:
- If you own stock that has appreciated in value and you have owned it for at least a year, you would be subject to long-term capital gains tax on the appreciated value when you sell the stock. For many people in middle income brackets, the Federal long-term capital gains tax is 15%. If you have a larger income, the California tax rate could be in the vicinity of 10%. Because of the limitations on deducting state taxes from Federal returns, many people will not be able to deduct the additional state tax, so the total tax rate on long-term capital gains could be about 25%. (You would need to make calculations to determine your own rate.)
- If you sell the stock and then give the proceeds to a charity, you get an itemized deduction for the value of the stock, but you must pay the tax (such as the 25% for many people) on difference between the sale price of the stock and the amount you originally paid for it.
- If you donate the stock directly to a charity, then you can deduct the full value of the stock as an itemized deduction, but you do not have to pay the capital gains tax on the appreciated value. If the stock is highly appreciated and you are in a higher tax bracket, this can be close to 25% of the value of the stock, compared to selling the stock and mailing a check for the proceeds.
- If you do not itemize your deductions, you will not receive a tax deduction for donating the stock (or at least you won’t benefit from it), but you will avoid paying the capital gains tax, so it might be a good way to get highly appreciated stock off your books.
To be able to donate stock, here is what you must do:
- Contact your broker and ask them to transfer stock directly into the church brokerage account, which is held at Charles Schwab, account #3295-0525. Do not sell the stock yourself and send us the proceeds; you must transfer the stock itself directly into our account. You can specify how many shares you want to transfer.
- The US banking system, in its infinite wisdom, does not supply information about the donor to the recipient when a stock transfer is received. You might think that this information would be easily available to the recipient; you would be wrong. Therefore you must do the following step to inform us of your transfer. It is preferable to do this just before you contact your broker so that we have it ahead of time:
- Go to the church website at sanjoseuu.org and click the blue “donate” link (not the yellow Donate button). Near the top of the donation page, you will find a link for “stock donations can be made here”. Clicking this link will bring up a form for your stock donation. Please fill out this form with full details of the stock transfer and your personal information. Then select the button to submit the form. The treasurer will receive a copy of the form and will be on the lookup for the stock so it can be sold immediately. Once the stock is received in our account, you will receive an emailed tax receipt for your donation. Your donation will also be included in the year-end summary of contributions that we mail in January or February.
- The donation is valued on the date that we receive the stock in our brokerage account (not the date that you request the transfer or the date that your broker initiates the transfer). The stock is valued by IRS regulations at the average of the high and low sale prices on the date we receive the stock into our account (not the closing price). This Fair Market Value is the amount you receive as an itemized tax deduction and the credit you receive toward your pledge.
- We try to sell the stock as soon as possible, but there is always at least one day delay until it is visible to us. The amount we receive for selling the stock may be greater than or less than the amount of your donation. We book the difference as a change-in-valuation; it does not count as pledge income (or loss), and it is not part of your donation.
- If you are making a stock transfer toward the end of the calendar year, make sure that the transfer will be completed before the end of the year. How long it takes would depend on your broker.
- Stock transfers are limited to 30% of your adjusted gross income. If you have that much money, you probably have a tax advisor, so consult them.
If you have questions, please contact firstname.lastname@example.org.