Stocks, Bonds, and Mutual Funds

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Appreciated stocks and bonds are among the most popular assets used to make charitable gifts. Making a gift of publicly traded securities to Caltech can help you reduce your income taxes and capital gains taxes.

A gift of publicly traded securities could be right for you if:

  • You own publicly traded securities that you bought at least one year ago.
  • Some of these securities have increased in value since you bought them.
  • Some of these securities may provide you with little or no income.

How it works

1.  You transfer shares of one or more publicly traded securities, such as stock, bonds, and mutual funds to Caltech.

2.  You can customize a gift that provides you payments for life.

What Are Publicly Traded Securities?
Publicly traded securities are stocks, bonds, and other investment vehicles whose values are readily available from an established securities market.  For example, stocks listed on the New York or NASDAQ stock exchanges are publicly traded securities.

Are Mutual Fund Shares Publicly Traded Securities?
Although mutual funds are sold by individual mutual fund companies rather than on an exchange, the same charitable contribution rules apply to mutual fund shares as to shares of publicly-traded securities.

Tax Benefits of Contributing Publicly Traded Securities
You can save income tax and capital gains tax when you give shares of a publicly-traded security that you have owned for a year or more.

Income Tax Benefit
If you have held your securities for more than one year, you may deduct from your taxable income the full fair market value of your shares as of the date of your donation, regardless of what you paid for them.  Your deduction is limited to 30% of your adjusted gross income.  You may, however, carry forward any unused portion of your deduction for up to five additional years.

Capital Gains Tax Benefit
When you donate publicly-traded securities that have increased in value, and you have owned the securities for more than one year, you do not have to report any of your capital gain in the securities.  If you were to sell these securities yourself, you would owe capital gains tax on the difference between the sale price and the amount you paid for them.

Should I Donate My Securities or Sell Them and Donate the Proceeds?
If you give your securities directly to Caltech, you avoid paying tax on any capital gain you have in your securities. If you sold your securities first and then gave Caltech the proceeds, you would have to pay capital gains tax on all of your capital gain—an unnecessary and potentially substantial cost to you.

What Is the Advantage of Giving Appreciated Stock Instead of Cash?
When you make a charitable gift of cash, you get a charitable income tax deduction only.  When you make a charitable gift of the same value with appreciated stock, you get the same charitable income tax deduction and you avoid capital gains tax on all of your capital gain.  The more highly appreciated the security, the more capital gains tax you will avoid.

The chart below shows how making a gift with appreciated stock can save substantially more taxes than making the same size gift with cash.

Cash Gift vs. Stock Gift
 

 

Cash Gift

Stock Gift

a.   Gift Value

$10,000

$10,000

b.   Income tax deduction

$10,000

$10,000

c.   Income tax saved (@ 39.6% rate)

$3,960

$3,960

 

d.   Purchase price

   -

$1,000

e.   Increase in value (a - d)

   -

$9,000

f.    Tax avoided on gain (@ 20% rate)

   -

$1,800

 

g.   Total tax savings (c + f)

$3,960

$5,760

 

What Happens if I Give Securities that I Bought Less than One Year Ago?

The charitable deduction available for property you have owned for 12 months or less, so-called "short term capital gain" property, is limited to either its current full value or what you paid for it, whichever is less. In this case, your deduction is limited to 50% of your adjusted gross income rather than the usual 30%. For example, if you give stock worth $10,000 that you purchased nine months ago for $1,000, your charitable deduction will be $1,000, not $10,000.

Is It Easy to Make a Gift of Publicly Traded Securities?
Yes. Whether you plan to give one share or one thousand shares, it is easy to give your publicly traded securities to Caltech.

Give Securities and Receive Payments for Life
Another option for giving securities is through a life income plan. Giving securities through a life income plan allows you to provide income for yourself or others you care about and then provide support to Caltech. Here's how it works:

1. You transfer securities to the life income plan.
2. During the term of the life income plan, you receive payments from the plan each year, typically for life.
3. When the life income plan ends, its remaining principal goes to support Caltech.

Using securities to fund a life income plan typically will reduce your income taxes and reduce or eliminate your capital gains taxes.

There are several life income plan options to choose from. The one that is right for you will depend on a variety of factors.  Please contact us know if you would like to learn more.

Gift Example

Max Loker would like to make a $10,000 gift to Caltech. While he could write a check for this amount, he will be able to save even more in taxes by giving stock worth $10,000 instead.  After reviewing his plans with his investment advisor, he decides to give shares of XYZ Corporation worth $10,000. He paid just $​1,000 for these shares when he bought them 20 years ago.

Benefits

1. Max will earn an income tax charitable deduction of $10,000, which will save him $3,960 (39.6% tax).

2. Max may deduct up to 30% of his adjusted gross income in the year of the gift, with a five year carry-forward period.

3. He will avoid tax on $9,000 of capital gain, which will save him an additional $1,800 (20% tax).

4. He will gain the satisfaction of making a $10,000 gift to Caltech.