Maximize Your Contribution to COVSA By Transferring Appreciated Stocks and Bonds

If your stocks or bonds have appreciated, consider transferring them to COVSA as a charitable contribution. By doing so, you will realize a deduction for your contribution, plus you will avoid the capital gains tax that otherwise would be due on the stock.

Remember that if you cash in your stocks and bonds and receive funds from your brokerage house, you must pay a capital gains tax, normally 15 per cent if you have held the securities for at least one year. If you have not held the securities for at least a year, you will pay tax at the "ordinary income" rate, often 25 - 30 per cent.

After selling your stocks or bonds and receiving the proceeds, you can, of course, contribute cash to COVSA or other worthwhile charities. But both you and the charity will benefit even more if the ownership of the stocks and/or bonds is transferred directly from your brokerage account to the COVSA brokerage account.

Since funds are not passing through you before being sent to the charity, you avoid capital gains tax and ordinary income tax.

Here is an example:

Suppose you bought 500 shares of CarMax over a year ago at $9 per share, for a cost to you of $4,500. That stock today is worth $20 per share, or a total of $10,000. If you wish to contribute the value of 100 shares to charity, you can do it in one of two ways:

1.  Tell your broker to sell 100 shares of CarMax at market and remit the funds directly to you. The broker will send you $2,000, upon which you will pay a capital gains tax of $165. You can contribute the balance of $1,835 to the charity. You can, of course, deduct $1,835 on tax form 1040 at the end of the tax year.

2.  Tell your broker to transfer 100 shares of CarMax to the brokerage account of the charity, which can then sell the shares and keep the proceeds tax-free. The charity gets $2,000, and you can deduct the market value of the stock ($2,000) at the end of the tax year. You do not have to pay a capital gains tax.

Clearly, course of action #2 is preferred. Here is how you do it:  Ask your broker for a "Charitable Gift LOA," also called a "Letter of Authorization To Transfer Shares." You will indicate on the form how many of which stock you want to transfer, plus you must  include your account number. You must also indicate the name of the brokerage that handles stocks for the charity, along with the charity's account number.

That's it. Everyone (except the tax man) benefits. The charity gets a greater contribution, and your tax deduction is increased.

For information about the COVSA brokerage account, call 864-288-0995 or send an email to covsa@att.net.

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