When thinking about your charitable donations, a little tax planning can go a long way toward increasing the impact of your gifts. Let’s go over an example.
Consider, for instance, a contemplated donation of $10,000. A simple way to put together the donation would be to sell some stock to raise cash and then make the gift. The thoughtful selection of securities so as to receive long-term capital gains treatment and minimize realized gains can help, but donors are nonetheless typically on the hook for taxes when they sell their holdings. In our example of a donation of $10,000, we might need to sell $12,000 worth of stock to cover the taxes.
Gifting securities outright, meanwhile, means that your dollars can go further. When gifting stock, no taxes are owed, in contrast with selling the stock first. What’s more, a $10,000 donation in cash or in kind is eligible for the same income tax break—at a 50% marginal state plus federal rate, this amounts to $5,000 either way.
Even beyond electing to donate securities in kind rather than cash, Neuberger Berman TaxM™ portfolios include detailed reporting to help investors select which specific tax lots to gift. Positions that are no longer in line with the investor’s benchmark can be donated rather than sold to avoid a tax hit. Low-cost-basis tax lots, with high unrealized gains representing a latent tax impact, can be donated and replaced with high-cost-basis lots. Overall tracking to a benchmark can be tightened while improving the potential for tax-loss harvesting.
Considering taxes when looking to donate to a worthy cause can make your gift go further and improve your tax outlook.
Hypothetical example. Assumes a $12,000 position of stock with cost basis of $2,000 (all long term). Assumes long-term capital gains are taxed at 20% and short-term capital gains are taxed at 50%.
