Investment clubs can reap an important tax advantage by making charitable gifts of stocks or other securities. Most charitable organizations are happy to receive gifts of securities; contact the organization and your brokerage firm to determine the procedures for transferring shares.
If the securities to be donated have been owned for longer than 12 months and a day, and those securities have appreciated in value, the amount that can be claimed as a charitable gift for federal income tax purposes is the securities’ fair market value on the date of the gift (determined by averaging the open and closing prices on the gift date).
But most importantly, the capital gains tax on the stock’s appreciation (the difference between its original cost basis and its present market value) is completely avoided! If your club wants to make a charitable contribution and you own securities with a lot of unrealized gains, considering a gift of some or all of those shares provides a double tax benefit — avoiding capital gains tax and getting a tax deduction for the gift.
For securities that have been held for less than 12 months, the amount that can be claimed as a charitable gift is the club’s original cost basis in the securities. Obviously, if those stocks have gone up in value, it wouldn’t make much sense to give those shares.
For securities that have gone down in value, it’s best to sell those shares, thus capturing the capital loss, and then give the proceeds as a cash gift. Donating depreciated shares means losing the capital loss, so this isn’t generally a recommended approach.
