Securities
Giving stocks, mutual funds or bonds to Sacramento State might save you from paying substantial capital-gains taxes.
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Donors normally receive a deduction for the value of their stock
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Donors avoid the capital-gains taxes that would have been due had they sold the stock
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Donors conserve cash. Many donors find that giving stock enables them to give a larger gift than they may have thought possible
Stock vs. Cash Gift
Step Up Your Basis
Get Income for Life
A Word About Stocks Options
How to Give Stock
Stock vs. Cash Gift
Suppose you own long-term stock that you are ready to sell, and you also want to make a gift to Sacramento State. If you donate $1,000 in stock, you could save about $300 in federal and state taxes. If you sell the stock and donate the after-tax proceeds, your gift is smaller (about $700) and so is your tax savings (about $210).
While it is often smart to donate appreciated stocks, it may be best to sell stocks that have declined in value since purchase, then donate the cash proceeds. In this way, you can claim your loss on the decline.
Step Up Your Basis
Suppose a company’s future looks bright and you don’t want to sell your stock? Consider donating highly appreciated shares, then buying an equivalent number of “replacement” shares on the open market. Essentially, you have replaced low-cost shares with stock that has a higher basis (i.e. purchase price). If the shares are sold after the appropriate holding period, the tax bite will be less because it’s figured from the new, higher cost basis.
For example, Joe Jasperson wants to give $10,000 to endow a scholarship in memory of his mother. Instead of cash, Joe donates 100 shares of XYZ stock, currently trading at $100 per share. Joe then uses the cash that he would have used for the gift to purchase 100 new shares. Since Joe originally paid $10 per share, he has stepped up his cost basis in XYZ to $100 per share. Three years later, XYZ is selling for $200 per share, and Joe decides to sell. Instead of paying taxes on capital-gains of $19,000 ($200 per share minus $10 basis for the shares he originally owned), Joe’s taxable gain is only $10,000.
Get Income For Life
Do you own stock that you’d sell if it weren’t for the taxes? Consider a life income gift(pdf). As the name implies, these gifts pay the donor (or other beneficiary) an income for life; then, the assets are distributed to Sacramento State. The income is based on the full market value of the stock, without erosion to capital-gains taxes. (Usually, the assets are reinvested to pay the donor a higher income than the stocks were providing.) In addition, the donor receives a partial income-tax deduction.
A Word About Stock Options
There are two types of stock options: Qualified and Non-qualified. Either type can trigger a whopping tax bill – Non-Qualified Options at the time the option is exercised, and Incentive Stock Options when the stock itself is eventually sold. If you are planning a transaction involving options-stock, please talk to us first about ways that you can make a gift to Sacramento State, receive retirement income, and get a charitable deduction to help lower your tax bill.
For more information contact Deborah J. Rice, Director of Planned Giving.