Tax on stock donations
Tax credit and capital gains exemption savings on charitable donations
A donation in the form of shares entitles you to 2 tax savings. Indeed, you receive the tax credit for the cash donation, equal to 50% of the fair market value of the donation, but in addition, you receive the exemption from capital gains arising from your donation… normally taxable. Indeed, a donation of shares automatically triggers a capital gain because the transfer of said shares is considered a deemed disposition. When it is a donation in the form of shares, this gain is exempted. Let us take the example of a share purchased for $100 (1, 5, 10 or 20 years ago, for example) and donated in kind at a price of $1,000.
In the preceding example, the cash donation actually costs 50% of the total donation, whereas the share donation brings an additional tax saving of 25% for an actual cost of 25%. For the purposes of this example, we used a marginal tax rate of 50%, whereas in reality, the marginal tax rate can range from 45% to 53%.
As you can see, a charitable donation in the form of shares proves to be the best known tax shelter, given that the tax credit applies not on the amount of your initial investment, but on the fair market value of the shares at the time of your donation. One can therefore conclude that you should seek out the shares in your portfolio that carry the highest possible capital gain… old shares purchased a long time ago, for example