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Merry Christmas and Happy Holidays!!!
For those reading this today, Christmas is two days away. I can’t wait! My parents throw a huge Christmas Eve party every year with friends and family. My mom makes an Italian feast for Christmas Eve each year, but my favorite part is her famous chocolate chip cookies. I can’t ever get enough of them. It’s fun to see everyone dressed up as we catch up with friends and family that we haven’t seen in too long.
I also get really excited to open up presents. I feel like a little kid every Christmas. As I’ve gotten older though, giving gifts has topped my list of favorite things about the holiday.
This year I was able to find an awesome deal on a Yamaha keyboard piano for my wife. My wife loves to play at her dad’s house, and my son, who just turned one, loves to dance while my wife plays. So I’m hoping this will be a memorable Christmas of music and dancing.
Reflection over the Holiday
During this season, I tend to reflect on all the wonderful blessings around me and all that I have to be thankful for. I am grateful to celebrate another year of marriage to my beautiful wife, to have watched my son grow and develop tremendously, for my faith, and finally, for good health.
Those four things are among many, many things I am thankful for. With that said, especially during this time of year, we try to give back and be as generous as we can. It looks like we are not the only ones. According to Guidestar, the majority of nonprofit giving is received during the October and December.
This article, however, is not meant to compel you to give. I think it’s way too easy to stand up on a soapbox and tell people what they should and shouldn’t do. When honestly, giving is totally up to you and your convictions.
Giving Shares of Stock
This article will address if you plan to give, how to potentially optimize your giving and get the biggest bang for your buck. Did you know that a lot of charities will accept shares of stock?
I certainly didn’t until my brother-in-law shared this information with me. He wanted to contribute to our local ministry here at church, but he didn’t have the cash available at the time. However, he did have some shares of stock that had appreciated greatly over the years, so he thought about selling the shares and then donating the money to charity.
However, before he did that, he found out that if you donate stock that has increased in value since the time that you bought it, you can take a charitable deduction for the stock’s fair market value on the day you give it away.
For those not following, let’s say that you bought 10 shares of stock for $100 each. For tax purposes that means that your tax basis in the stock is $1,000. Now let’s say that you hold the stock for more than a year, and the stock doubles, so each share is now worth $200. The fair market value of the shares are now $2,000.
If you have held the shares for over a year, you will avoid the capital gains tax and will be able to deduct the fair market value on your itemized deduction. However, if you have only held the investment for less than a year, you are limited to deduct what you paid for the stock.
So clearly, it is tax advantageous in this scenario to hold the shares of stock for a year in order to maximize your deduction.
Now let’s say that the opposite happens. That your investment goes from $1,000 down to $500. In this scenario, it makes more sense to sell the investment and then give the cash proceeds. This way you will be able to take a capital loss on your taxes and be able to take the charitable deduction on your itemized deduction. Please note: if your capital loss exceeds your capital gains for the year that the maximum deduction that you can take is $3,000. Any additional losses would be rolled into the following year.
One thing to be aware of is not every nonprofit is familiar with the process of receiving shares of stock instead of cash. So you may need to educate the charity about the process.
In order to complete the process you will need to contact your brokerage firm to have them walk you through the procedural steps. Normally, you will be required to fill out a transfer form and then you will need to notify the charity that the shares of stock are on the way. Be as detailed as possible by letting the nonprofit know the name of the stock, the number of shares, and the date you are expecting the shares to arrive in their account and most importantly, making sure they recognize the shares came from you.
So readers, have you ever given shares of stock to a charity? Did you run into any difficulties? Share your stories below.