Here's the way Alan Olsen, the managing partner at Greenstein, Rogoff, Olsen & Co. in San Francisco describes the charitable contribution deduction for stock (received via email titled "Financial and Tax Trends Media Need to KNow About" from Olsen's PR firm Apr. 28, 2010).
Make charitable contributions. If you have appreciated stock that you’ve had for more than one year you may want to keep the cash in your pocket and donate the stock. You’ll avoid paying the tax on the appreciation but will still be able to deduct the full value of the stock. You win. Your charity wins. The only loser is Uncle Sam.
Now, those of you who have been following this blog know that this particular deduction is one of my pet peeves. It provides a freebie that is per se available only to the 30% of taxpayers to itemize and, within that group, primarily of benefit to the wealthiest set who own most of the financial assets and generally get the bigger rate deduction because of their higher tax bracket. They can hold greatly appreciated stock without paying tax on the appreciation, and use that as collateral for borrowings at low cost, so already the possession of appreciated stock accrues benefits not available to ordinary Americans who generally hold only small amounts of stock. But then if these fat cats want to reduce their tax bill, they can donate stock to their favorite charity (maybe it's one that provides a service that they enjoy, such as the opera or symphony, get all kinds of status and name recognition goodies and enjoyable services from the "gift" AND get a tax deduction for the full value as a gift from the federal government.
Note the way this works: Let's assume a banker who has lots of stock that he received as bonuses. Let's say each share of stock is worth $200 but the banker/contributor has only a $2 cost basis. The banker contributes to his local opera company (that puts a plaque up in its lobby in his name in recognition) and gets a tax deduction of $200, $198 of which is an unjustified freebie from Uncle Sam to the banker/contributor, resulting in about $66 lower taxes (assuming a tax rate around 30%). So 1000 shares and that's $66,000 less in taxes paid on other taxable income. If the banker had sold the shares and contributed the money instead, he would have paid tax on the appreciation (regretably, only at a reduced preferential rate, but at least that would be fairer). Since he gives them away instead, he isn't taxed on the appreciation but still gets the deduction. No income tax on the full value. Tax deduction for the full value.
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