Advantages of donating mutual funds, stock and other investments.

A few years ago changes in tax law eliminated the capital gains tax on publicly listed stocks donated to charities. This creates a tremendous advantage for individuals to donate appreciated securities directly to a registered charity and thereby eliminate all capital gains tax.

CMI supporter and tax professional M. Koehler of Ontario says,

‘This is a win-win situation for both the donor, and CMI.’

Consider the following two scenarios:

  1. Sell stock and donate the cash to CMI.
    1. You paid $2000 for stock 10 years ago.
    2. It is now worth $10000 and you want to sell them to donate to CMI.
    3. You sell, your gain is $8000, half of which is taxable at your current rate.
    4. You get taxed 31% (if you are in a mid-tax bracket) on the gain of $8000 ($2480 tax) and give the remaining $5520 plus the initial cost of the stock of $2000 to CMI.
    5. You get a charitable receipt for $7520.
  2. Donate stock directly to CMI.
    1. You paid $2000 for stock 10 years ago.
    2. It is now worth $10000 and you want to donate to CMI
    3. You donate the $10000 worth of stock.
    4. You get a charitable receipt for $10000 donation.

The advantages are:

  • You incur no taxes on this transaction, as you have donated the appreciated stock.
  • You don’t pay any tax on the capital gain of the stock.
  • Your donation to CMI is 33% larger. This works out to a net increase in your donation from $7520 to $10000.
  • You get a charitable donation receipt for the full appreciated value of the stock.

Qualifying securities include listed stocks, rights, mutual funds, interests in related segregated funds, or bonds. For details on how to transfer stock to CMI seek out the direction of your tax professional. It is often as simply as filling out a transfer of securities form authorizing the gift.