JDKatz: Attorneys at Law

YOUR GUIDE

FOR THE JOURNEY

Free Consultation

Warren Buffet still remains as one of the world’s richest men even with his philanthropic lifestyle. He has pledged to give away 99% of his fortune as part of The Giving Pledge. According to Forbes, he has so far donated $11.5 billion to the Bill Melinda Gates foundation.

This year, alone, the multi-billionaire has donated over $2.6 billion to the Bill and Melinda Gates Foundation and four other charities. However, note that he made this year’s donation by handing over some of his stock in his company, Berkshire Hathaway.

According to recent SEC filings, to complete this $2.6 billion donation, Buffet converted 14,000 class A shares to 21 million class B shares. He then donated 22,870,529 shares of his class B common stock, which were trading at about $115 per share at the time.

This gift to the foundation did not even remotely dent Mr. Buffet’s wallet. Thanks to appreciating Berkshire stock, his worth has climbed from $53.5 billion at the beginning of this year to $59 billion.

So what happens when someone donates stock, what is the tax effect?

“The donor gets a charitable contribution deduction based on the fair market value of what is given. Value and basis are different things and that means a big tax advantage.”

This means that Mr. Buffet donates his shares at the market value and he doesn’t have to pay taxes on his income gain. The donated stock makes it a great tax credit in the sense that it is a better option than selling the stock, paying tax on the gain or donating the cash from the sale. So in all, by donating the stock, the gain the donor would experience on selling it is never taxed.

“Mr. Zuckerberg [CEO and Founder of Facebook] donated $500 million of his Facebook stock to the Silicon Valley Community Foundation. Zuckerberg made his donation in the form of 18 million shares, translating to a $500 million tax deduction. The Facebook IPO price was $38 a share. They price dipped below $20 but then rose by more than 25% by the time of Mr. Zuckerberg’s December 2012 donation.”

Similarly, if the donations is made to a tax-qualified charity and the charity then decides to sell the sock, it doesn’t have to pay tax regardless how big of a gain it yields.

And as we all know, big donations create big tax benefits.

How do you file donations correctly?

Make sure that the donee organization is qualified. To check whether particular organizations are on the IRS list, click here. Additionally, remember you cannot deduct contributions to individuals, political organizations or candidates.

“Donations go on Schedule A to Form 1040, so you must itemize. You can only take a deduction for up to 50% of your adjusted gross income for most charitable contributions (30% in some cases). If your donations entitle you to merchandise, goods or services, you can only deduct the amount exceeding the fair market value of the benefits you received.”

For example: If you pay $300 for a charity dinner ticket but receive a dinner worth $100, you can deduct $200, not the full $500.

So in all, the moral of this story is that donating appreciated stock can be tax efficient for the donor and even more beneficial for the donee.

Related articles

JDKatz: Attorney's At LawJDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

Footer

At JDKatz: Attorneys at Law, each of our attorneys brings a unique set of experiences and perspectives to bear on our clients’ legal problems. For each case or task we take on, we assemble a team of lawyers ideally situated to our client’s specific needs and goals. Our managing partner, Jeffrey D. Katz, founded our firm in 2000 after starting his career in the tax department of Big Four accounting firm KPMG Peat Marwick. To learn more about our attorneys’ backgrounds and qualifications, please review their individual profiles.

HOW CAN WE HELP? CALL TODAY:

MD. (301) 913- 2948
D.C. (202) 600- 2600