Gifts of stock when donating to charity: A win-win option
Note: Deadline for eligibility is December 31st of every year.
By Paul Morton, CPA, CA, CFP, TEP
This being the season of giving and receiving, let’s consider the advantages of donating a piece of your stock portfolio to your favourite charity.
Donating stock to charity can be an ideal and relatively easy method of giving a portion of your wealth to help others. Here’s why.
Donating Stock vs Donating Cash
Donating stock, as opposed to cash, allows you to avoid capital gains tax and to claim back 50% on every charitable dollar. Simply put, if you donate $10,000 in stock to charity, you save $5,000 on your tax bill from the donation, and you do not pay tax on the capital gain on the stock that you donate. To maximize the tax savings, many people choose to donate the stocks from their portfolio which have been the most profitable (those with the largest capital gain). Your investment advisor can assist you in choosing which stocks to donate.
In addition, if the federal government increases the taxes on capital gains, the stock donation option could become even more attractive.
Benefit to Charities
Stocks are a common way of giving for many of our clients; and, at the receiving end, charities can immediately and easily sell the stock to help finance whatever good work they do. The charity will gladly help with the necessary paperwork that must be completed ahead of time.
Some clients in a financial position to donate stock to charity hesitate to do so because they have concerns over their own financial security. In other words, will they have enough money to support their chosen lifestyle until they die? For these individuals, tax law offers people with those concerns a compromise, making it possible to leave a portion of stock to charity after they die. Your beneficiaries – typically family members – are allowed the same 50% tax advantage and avoidance of capital gains tax. In these cases, pre-planning is necessary when you draft your will. The government needs proof that the deceased person intended the stock to be donated to charity.
Consult with Your Accountant and Financial Advisor
The deadline for claiming a charitable donation is December 31; so, if a stock donation is on your 2017 to-do list, now is the time to consult your financial advisor.
Paul Morton is a GGFL partner and tax specialist, who has been with GGFL for more than 30 years.