If you make money in the stock market, you’re probably familiar with paying Capital Gain Tax (CGT) to the IRS. Arms Wide Adoption Services has recently partnered with DonateStock to give our supporters an option that will help you save on capital gains tax while making a lasting impact on the children we serve. In this Guest Blog from our friends at DonateStock, want to share this little-known giving strategy that can help you save on your capital gains tax bill while maximizing your charitable donations.
A Brief Capital Gains Tax Explainer
A capital gain refers to the profit realized after the sale or exchange of a capital asset above its cost. It is considered part of your taxable income. To figure your exact CGT rate on stock transactions, there are a few factors to consider: filing status, total taxable earnings, the capital gain amount itself, and whether it was from a short or long-term sale. This includes the Net Investment Income Tax or State Income Tax, for those to whom they apply. (If you’re interested in a quick estimate, NerdWallet has a great online calculator* tool.)
Let’s take a quick dive into a hypothetical investor profile.
Let’s assume that 3 years ago you bought 10 shares of a stock at $50 each for $500 and that each share is now worth $100 ($1,000 in total). If you sell the stock, you’ll pay CGT on the $500 gain. This could cost you $100 in taxes if you live in Texas. If you donate the after-tax proceeds of $800, you would earn a deduction of about $300 ( assuming your tax rate is 37.5%). After paying $200 in CGT and saving $300, you save $100 for donating $800 to Arms Wide.
Now let’s assume you donate (rather than sell) the stock. You would avoid the $200 CGT and earn a higher deduction of $375 (assuming 37.5% tax rate). By donating the stock, you save $575 in taxes, which is almost 6x the $100 from selling the stock and donating the after-tax proceeds. Moreover, Arms Wide receives $1,000 instead of only $800 (25% more!).
Put Stock in Something that Matters
DonateStock is a fast, easy, and secure way to put stock in something that matters. Donating appreciated stock could mean up to 25% more impact on our mission of transforming the lives of children in foster care in need of safe, nurturing permanent families. Visit our DonateStock page to start the process in just 10 minutes or less.
*Disclaimer: We are not tax advisors. Please consult a professional for your tax needs.