Start With Numbers: A Case Study for Charitable Clients

Of course, as an advisor, you know that it’s more advantageous for Alice to give the stock. But it might help to break it down into real numbers when you talk with Alice:

• Alice’s annual income of more than $500,000 lands her at a Federal marginal tax rate of 37% and a Federal long-term capital gains tax rate of 23.8% (20% plus the 3.8% Net Investment Income Tax).
• Let’s assume that Alice itemizes her income tax deductions, and that Alice’s cost basis in the $10,000 worth of Apple shares is $2,000.
• If Alice gives cash to The Community Foundation and claims a charitable deduction of $10,000, the resulting Federal tax savings will be $3,700, bringing the net cost of the donation to $6,300.
• On the other hand, if Alice were to donate $10,000 of Apple stock instead of giving cash, in addition to the federal tax savings, Alice would avoid an unrealized capital gain of $8,000, equating to $1,904 in capital gains tax avoided.
• The upshot here is that the gift to charity is $10,000 in either case, but giving cash “costs” Alice $6,300 while giving stock “costs” her just $4,396. 

Charitable conversations with your clients can lead to productive discussions about maximizing lifetime giving, legacy planning, involving the next generation, and so much more. Please reach out to our team anytime! We’re happy to share more ideas and examples of the many ways your clients can make a difference.