Consider stock for tsunami relief

By John Eckberg
Cincinnati Enquirer

Americans have been donating millions of dollars in cash to the victims of the Indian Ocean tsunami. But experts say there's something that may be better than cash for the charity — and for donors' 2005 tax bills.

Instead of giving cash, which is still deductible on 2004 tax forms if the donation is made in January, individuals might consider donating shares of stock that have appreciated in value.

That lets donors avoid paying federal and state taxes on capital gains, providing they were going to sell the stock in the first place as a way to fund the donation.

Charities can cash in the donated stock but are not required to pay those taxes, said Crystal Faulkner, a partner at Cooney, Faulkner & Stevens LLC, a Cincinnati certified public accounting and business advisory firm.

"It makes a lot of sense for individuals to contribute appreciated stock because you can permanently avoid the gain on the sale of the stock and yet get a deduction equal to the fair market value of the stock," said Faulkner.

Stocks should have increased in value and have been held for more than a year by the donor, she said.

Making a donation of stocks instead of cash can save a significant amount. For instance, Faulkner said, suppose a donor had bought shares of stock for $300. If the donor sells the shares for $1,000, the gain of $700 would be taxable, Faulkner said.

"The tax on that gain would be $140," she said. "So the net, after taxes, that you are giving to the charity is $860 — not $1,000."

Donating the appreciated stock means the donor can avoid significant capital gains, agreed Jim Yunker, president of Smith, Beers Yunker & Co., an international fund-raising and management firm with offices in Chicago and London.

"A lot of people are not aware of this unless they are accountants," Yunker said.

Yunker cautioned that donations made to overseas charities are tax-deductible only if the group has an American affiliate.