Each month we will publish a newsletter containing items of current interest in the areas of taxes, financial planning and investments. The purpose of these articles is to provide you with information on important news, but written in a non-technical fashion. Issues such as the Affordable Care Act (aka Obamacare) and how it can impact your tax return, how to lower your taxes through charitable donations of appreciated property, and which method to choose to maximize your social security income are just a few of the topics you will see here.

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Giving a Gift and Receiving a Tax Deduction

Here’s a great idea for a year end gift to both a charity and yourself. Donate appreciated stock. This is how it works.

1)    You must have held the stock for more than 365 days.

2)    The stock must be worth more than you paid for it.

3)    Donate the stock to a recognized charity.

4)    Deduct the full value of the stock on Schedule A of your tax return.


For example, on December 31, 2010 you purchased 300 shares of Starbucks stock at $32 a share, a total of $9,600. Assume the stock is selling for $82 a share on December 1, 2013. The stock is valued at $24,600. If you donate the 300 shares to your favorite charity, you will take a $24,600 deduction on your tax return, even though you only paid $9,600 for those 300 shares. The charity benefits from you generous gift and you get to reduce your taxable income. If you are in the 25% tax bracket and you live in Maryland, you will reduce your Federal income taxes by $6,150, and your Maryland State income taxes by $2,190, a total saving of $8,340.


What if you decide to sell the stock and then contribute the proceeds to charity? That will cost you. In the above example your Federal income tax on the sale would be $2,250, and your Maryland State income taxes would be $1,335, a total of $3,585. Depending on your adjusted gross income, you might also be liable for the new 3.8% Medicare contribution surtax, created by the Affordable Healthcare Act. That would tack on an additional $570 tax to your Federal tax liability. If you first pay your taxes from the proceeds and then donate the remainder, the charity will receive between $20,445 and $21,015, reducing your charitable contribution. That in turn reduces your tax deduction by at least $857.