Imagine you had 100 shares of a stock that had doubled from $50 a share to $100. If you sold all 100 shares, you'd realize $10,000 but might be left with only $8,500 to give to charity after paying a 15 percent long-term capital gains tax. By giving the shares themselves rather than selling, you pass the whole $10,000 to the charity and get to take a deduction on the full $10,000 as well. The charity pays no capital gains tax when it sells the shares. (With a money-losing investment, incidentally, it may be best to do the opposite: Sell it so you can claim a tax loss, and then give the proceeds to charity and claim a charitable deduction.)
Investors thinking of donating mutual fund shares should consider doing so fairly soon, said Andrew M. Aran, a partner with Regency Wealth Management in Ramsey, New Jersey. The goal, he said, is to donate the shares before the fund company makes its annual capital gains distribution, a taxable payout of profits on holdings the fund managers sold during the year. These distributions are usually between late November and the end of the year.
Your broker or mutual fund company will know how to make an asset donation, since few investors these days have old-fashioned paper stock certificates. Note that the transfer to the charity must be complete in the calendar year and the process can take several weeks, so don't delay.
In past years, investors could contribute IRA assets to charity and avoid tax on IRA withdrawals, but that rule has expired. Last year, Congress reinstated it in December for the 2014 tax year, but there's no guarantee that will happen this year.
— By Jeff Brown, special to CNBC.com
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