The virtues of giving were instilled in Arthur Stainman from an early age.
“When I was growing up, my parents did not have a lot of money, but they always shared what little they had with other people that were less fortunate,” said a New York-based cash manager.
Now, as a successful professional, he’s carrying on that legacy, but he is doing it in a way with serious financial advantages.
He’s one of many people taking advantage of a provision in the tax code that lets benefactors donate appreciated stock to charity.
It is a win-win situation
Charitable organizations get a wonderful contribution (they usually sell stocks immediately), while donors can write off the gift and avoid paying capital gains taxes on the stock gains.
The strategy has existed for some time, but after waning throughout the fiscal crisis, it’s gained popularity again in recent years as the stock market has return back to life.
Stainman’s charity of choice is the Food Bank For New York City, where he has served on the board since 2007. As a member of this so-called “1 percent,” he noted that his high tax rate makes inventory donations even more attractive.
“To get a donor it makes the most sense,” he said. “It’s an easy, seamless transaction.”
Most of the shares Stainman donates are ones that he’s owned for quite a while and would want to offload anyway.
“I’ve really managed to rebalance my portfolio in a manner that’s very tax effective,” he said.
Warren Buffett is just another devotee of donating stocks to charities. His $2 billion gift to the Gates Foundation came in the shape of shares of his Berkshire Hathaway company.
The practice usually enables donors to give more money to the charity than they would if they sold the shares on their own, paid taxes on the gains, and then donated the cash to the organization.
Charities love it
For Non-profits, stock donations are a significant blessing to their coffers. They have even beefed up their promotional materials to educate people about the strategy.
Alyssa Herman, Chief Development Officer for the Food Bank For New York City, stated that although inventory gifts only make up about 1.25% of total contributions, many times they tend to be major gifts worth over $10,000.
“When people actually love an organization, This can help them provide something a bit bigger than they might have,” she alleged.
Indeed, the rising stock market does not hurt either. The Food Bank experienced near a 50% jump in inventory contributions in its latest financial year.
Not just for the rich
While Stock donations are traditionally employed by the wealthy, anyone who itemizes their deductions can take advantage, according to Deborah Lauer, who works in the Estate Planning Group at Wells Fargo Advisors.
And before the end of this year, individuals who are 70.5 years old and older can make a charitable cash distribution of up $100,000 straight from their IRA. (Congress has been renewing this rule for the past couple of decades, but has never made it law). However, since the distribution is not taxable, it is also not tax deductible, Lauer pointed out.
More typically, she explained, clients will make stock donations from a non-retirement account so they get the tax benefit.
“We are really looking at individuals who see something in society they want to improve, and if they can get a tax deduction from it, obviously That’s an additional advantage,” she said.