During a routine check-in meeting, your client mentions that their employer was just acquired, their shares went through the roof, and they’re now flush with cash. “I’d like to use some of the money to give to charity,” the client tells you. “Let’s talk about a giving fund at the Omaha Community Foundation.”
You try not to flinch as you mentally calculate the capital gains taxes your client could have avoided if they’d given some of those shares to a fund at the Omaha Community Foundation years ago when the company was clearly growing fast, making it a natural target for acquisition or IPO, but well before an exit was in the works.
All is not lost. You can still help your client establish a fund at the Omaha Community Foundation to fulfill the client’s charitable intentions. The client’s gifts to the fund will qualify for a charitable tax deduction in the current tax year, helping to offset the income from the sale of the shares.
However, this situation is all too common and a good reason to regularly remind your clients about their options for making gifts to nonprofits and how those options include different tax benefits.
Giving cash to a nonprofit, which is what your client in this situation would be doing, is always a viable option. The general rule is that your client can deduct cash gifts to up to 60% of their adjusted gross income (AGI) in any given year. While this may not completely offset large gains from the sale of the stock, it will help to reduce the client’s taxable income.
Giving appreciated stock, which is what you wish your client had done, is a very tax-effective method of supporting nonprofits. Clients who donate stock outright avoid all capital gains tax that would be levied on a sale of the stock if it were sold prior to making the donation. Even with the 30 percent of AGI limitation imposed on gifts of highly-appreciated, long-term capital gains property to a nonprofit, your client likely will still come out ahead because the AGI is presumably a lot lower than it will be in the year of a future stock sale.
Planning ahead
Gifts of publicly traded securities must be received into the Omaha Community Foundation’s brokerage accounts by 3 p.m. December 30. We encourage you to communicate with your client’s broker, as many brokerage firms have their own year-end deadlines. As a general rule, we recommend that you initiate the gift at least 10 business days in advance of December 30.
Before you initiate the gift, please contact a Donor Services team member who will provide you with the appropriate transfer instructions. You can reach us at 402-342-3458 or giving@omahafoundation.org.
