Donating cash to a private foundation is a great way to provide funds to various causes supported by the foundation. As a donor you receive an income tax deduction for the amount contributed up to 30% of your adjusted gross income. However, giving cash is not the only way to contribute to a private foundation.
An alternative to donating cash would be to donate the stock of a publicly traded company directly to the private foundation. Ideally, a donor would donate appreciate stock held longer than one year, which is an investment that has increased in value from the time it was purchased. Contributing such assets would enable a donor to eliminate the capital gains tax liability that would be generated upon the sale of those assets. By avoiding this capital gains tax a larger donation can be made to the foundation using the same stock.
In addition to avoiding capital gains tax, a donor would still enjoy an income tax deduction in the amount of the fair market value of the stock donated, up to 20% of the donor’s adjusted gross income. Amounts over this 20% threshold can be carried forward for up to 5 years. If donating appreciated stock held less than a year the subsequent income tax deduction would be limited to the stock’s cost basis, which is what was originally paid for the stock. Donating stocks of privately held companies would also only allow a deduction of the stock’s cost basis.
As with any donation, the donor should not expect anything in return from their donation, nor enter into any arrangements with the foundation about the ultimate disposition of the stock. Something to keep in mind is that the individual charitable income tax deduction is only available if a donor currently itemizes deductions on their individual tax return, as opposed to taking the standard deduction. Most importantly, gifts must be made by December 31st to qualify as being made in the current tax year.
Gift giving is extremely important to help private foundations continue to support important causes. As a donor, if you plan to contribute to a private foundation it would be more beneficial to contribute in a tax advantaged way and give the gift of appreciated stock.
ANTHONY MADONIA is an Attorney and Certified Public Accountant who concentrates in the areas of Estate Planning and Administration, Business Strategy and Planning, Wealth Counseling, Corporate Law, and Taxation.
Mr. Madonia graduated with a Bachelor of Arts degree in Accounting.
He earned his Juris Doctorate from John Marshall Law School while practicing as a Senior Tax Accountant. Anthony Madonia thrives on legal and tax challenges.
Mr. Madonia is highly respected for his knowledge and insightful perspectives on the complexities that affect privately-held businesses. He is dedicated to preserving the wealth of privately held firms and the families they support. Find him at madonia.com.