CONSIDER USING STOCK AS A GIFT


by: William Creekbaum

 


When making a gift, or fulfilling a pledge, you might want to consider using stock as opposed to cash, especially if the stock has a capital gain and has been held longer than 12 months.


The simple reason is that the net cost of the gift, after considering tax issues, may be less when gifting stock. As an example, suppose you wanted to make a gift of $1,000 to Carson-Tahoe Hospital Foundation. Instead of giving cash, you donate 10 shares of a stock currently trading at $100 per share. You have owned the stock for three (3) years, and your basis in the stock is $t0, so $90 per share represents a long-term capital gain. In essence, the stock has a capital gains tax liability of $135. ($90 x 15% x 10 shares) .That is, if you were to sell the stock, you would owe $135 in capital gains tax. So, think of your $1,000 gift as really only “costing” you $865.


A straight gift of cash, on the other hand, would cost the full $1,000. Hence the stock is actually less expensive to give than cash. There’s actually a somewhat complicated formula which you can use to figure out the real after-tax cost to you.

For a gift of cash, the “cost” is equal to the gift minus your income tax rate times the gift. If you’re in the 35 % bracket, for example, your $1,000 gift will “cost” you $650 ($J,000minus$350).


If the gift is one of long-term capital gain property, like the stock example above, then the formula gets more complicated. It figures the “cost” just like with a gift of cash, but then subtracts the capital gains tax----because that is actually being “saved” when you make the gift of stock to Carson-Tahoe Hospital Foundation.

In our example, it would be $650 minus $135----or a net cost of $515. Therefore, it “costs” $650 to gift the actual cash, but only $515 to gift the stock instead.


The difference? - - -That $135 of capital .gains tax. Of course, it probably simpler just to calculate your potential capital gains tax liability ----- and then just subtract it from your gift. That’s what you’re really saving.


 In short, consider making gifts of appreciated stock rather than cash — it really can save you money and ensure that Carson-Tahoe Hospital Foundation gets what you want it to have!

          * This computation is for illustrative purposes only and

             assumes a 15 percent capital gains tax rate.



Source:

William Creekbaum, MBA, CFP, a Washoe Valley resident, is senior investment management consultant of Smith Barney, a financial services firm serving Northern Nevada. (Dated September, 2004)

Contact him at:

William.a.Creekbaum@smithbarney.com

or 775-689-8700



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