Let’s talk about how you can avoid paying capital gains tax by donating to charity. What happens oftentimes is that if somebody has a stock that’s gone up in value over time they might say, okay let’s sell that stock and give some money to charity. It’s always good to give money to charity. Give back to the community, give to those who need money. That’s wonderful, but let’s be smart about this. What other benefits can we get by donating money to charity?
And in this case, if you have a stock that has gone up in value over time it’s best just to donate the stock directly to charity. I’ll give you an example. Let’s say you bought a stock five years ago for $100, and now it’s up to $150, which is great. A lot of people would take that stock and sell it and then donate the cash to charity. Again, nothing wrong with donating to charity. Let’s think about how to do this better. Instead, if you donate the stock to charity directly you do not pay any tax on your gain. In this example you bought it for $100, now it’s worth $150, so you have a $50 gain that you would pay tax on.
Essentially, you’re able to donate more money to charity now because if you’re long term capital gain let’s say 20%, you made $50 and you’re gonna pay a tax of 20% on it, you’re paying $10 worth of tax. So now really you’re only donating $140. The stock’s worth $150, but you’re paying $10 of tax. You’re really only donating $140. If you donate directly to charity, you don’t pay any capital gains tax, which means the full $150 worth of stock goes to the charity, who can then sell the stock and use the cash for whatever their charitable purpose is.
So it’s a great way to take something that you have that has value that’s gone up over time to where if you just sold it and kept the money yourself or turned around and gave the money to charity, you’d pay a capital gains tax on it. Instead, just give the stock directly to the charity in the first place, and you won’t pay any capital gains tax. If you have any questions on this, feel free to give me a call, shoot me an email. I’m happy to help.