Feeling a bit like Ebenezer Scrooge? It is still early yet this December so there's time for prepping, shopping, and holiday parties. And if you should find redemption after meeting the three Ghosts of Christmas, you may find yourself wanting to gift some of your appreciated stock to a qualified charity. If so, here's a quick article on valuing your charitable stock donation.
The motivation for donating appreciated stock is that it allows donors to deduct the stock's full market value and not owe capital gains tax.
How Long Have You Owned The Stock?
First, make sure that you are donating stock that you have owned for over a year. If you donate stock you've owned for less than a year, you can only deduct your cost, not the market value.
Second, your donation needs to go to a qualified charitable organization. Further, you must itemize your deductions on your income tax return.
Calculate the Value of Your Donation
Once you have signed the approprate paperwork (e.g. Partial Delivery Account Transfer Request,) you'll want to value your donation on the day that it transfers out of your account to the receiving charity's account. Assuming there is an active market for the contributed stock, the fair market value of each share or bond is the average price between the highest and lowest quoted selling prices on the valuation date. For example, if the highest selling price for a share was $11, and the lowest $9, the average price is $10. You get the average price by adding $11 and $9 and dividing the sum by 2.
If there were no sales on the gift date, but there were sales within a reasonable period before and after the valuation date, you determine fair market value by taking the average price between the highest and lowest sales prices on the nearest date before and on the nearest date after the valuation date. Then you may weight these averages in inverse order by the respective number of trading days between the selling dates and the valuation date.
For more details, reference the IRS website for how to calculate fair market value for different kinds of property.
Finally, brokerage firms and banks experience a high volume of requests including required minimum distributions and charitable donations that need to be processed before the end of the year. Try to plan ahead and allow for enough time to process paperwork.
Wishing you a peaceful Holiday season that includes giving! After all, it is better to give than to receive!
Have you decided to make charitable donations this year? Is it more or less than in previous years? Please share your experiences.