“Would you believe Matt gave $60,000 to the school capital campaign?” said my friend Beth.  We were catching up after being out of touch for years and these were the first words out of Beth’s mouth after she learned I was a fee-only financial advisor.  She elaborated on the gift by saying that her husband Matt had just cashed in on some of his stock gains and they had a pool of cash sitting around.

Your interpretation: Wow!  Those people are lucky to have so much money that they can gift $60,000.

My interpretation: OMG!  Beth, you just lost about $20,000! Beth and Matt lost $20,000 by first selling the stock and then gifting the proceeds to the school.

What they should have done:  Matt should have gifted the shares of stock directly to the school. The advantage of gifting the appreciated securities to a qualified charitable organization is that the gifter doesn’t have to pay the capital gains tax on the stock increase.  If Matt and Beth had gifted the securities instead of cash, they could have saved themselves $20,000 in capital gains taxes.  Ouch!

Keep this mind as you consider your charitable gifts for the year.  The stock market is up significantly over the past twelve months, and chances are that you have some gains on which you’d prefer not to pay taxes.  Why not gift appreciated shares instead of cash?

Some brokers (perhaps yours) make this very easy by allowing you to set up a charitable gift account. For example, with this type of account I can gift appreciated securities worth $5,000 to the account now and take the charitable gift tax deduction. I can then parcel out my gifts to the charities throughout the year(s), $500 here and $500 there.  I avoid having to pay capital gains on the shares and I have made my charitable gifts for the year.  Here are two, but there are many more:

http://www.fidelitycharitable.org/

http://www.schwabcharitable.org/public/charitable/home

Here’s how it works. Let’s say I originally paid $1,000 for the shares. If I sold them for $5,000, I would have a $4,000 taxable gain.  I could sell the shares and gift cash to my charities, but I’d have to pay about $800 (20%) in taxes.  Why not  gift the securities, keep the $800, perhaps to take yourself on a vacation instead!  Maybe Beth will do that next time.