Donate stock to charities, not cash from sale of shares

On the Money

Your Money

March 18, 2007|By Gail Marksjarvis | Gail Marksjarvis,Chicago Tribune

I want to give shares of stock to a Catholic school. The stock is trading at about $100, but I bought it a long time ago for about $15. Is my deduction the present price or the purchase price of the stock?

- M.M., Joppa, Md.

This question illustrates why people are smart to donate shares of stock, mutual funds or bonds to charitable organizations, instead of giving cash.

When you give shares of stock to a charitable organization, you can deduct the full value on your taxes - or about $100 a share in this case. That's a good deal for you and a good deal for the charity, because the charitable organization gets the entire benefit of your gift. Official charitable organizations - including churches - are not taxed when they sell stock. So no one pays taxes.

You would not be able to benefit from your gift as much if you sold stock yourself, and then gave a gift of cash to the charity.

Because you bought the stock at $15 a share, it increased $85 in value. The complete increase in value would be subject to capital gains taxes of up to 15 percent on the money made since buying the stock.

So to get the greatest bang for your buck, give stocks, bonds or mutual fund shares to charities instead of cash.

My daughter wants to sign up for a class offered through her school that would take her to Greece this summer. All the money I've saved for her college is in a 529 plan. Would this qualify as an allowable expense under the rules?

- R.S., via the Internet

If your daughter is in high school, you cannot use the 529 college savings plan money without facing a tax penalty.

A 529 plan is designed to let you save for college or technical education without being taxed on the earnings. But you cannot use the money for younger students.

If you had saved money in what's called a Coverdell education account, instead of a 529, you might have been able to use those savings for some of the Greece trip. But even that is somewhat unclear, said CCH Inc. tax analyst Mark Luscombe.

Coverdell money can pay for educational expenses before a student goes to college, but there are rules about what qualifies.

Transportation is not covered, but "required" school expenses are, Luscombe said. "Required" is a key word. Luscombe said it probably means that if the trip is voluntary - not a part of a required class - that you could have trouble convincing the IRS to let you use Coverdell savings tax-free. Regardless, you probably would have to pay airfare on your own, without using Coverdell money.

Like a lot of tax rules, those surrounding education savings accounts are not entirely clear, although you can review them in IRS Publication 970.

You should also be aware that the rules around 529 savings plans also are fuzzy for overseas education. If your daughter is in college and wanted to use 529 money for a study-abroad program in Greece, some of the same issues would arise.

The money could not be used for airfare to Greece, said Joseph Hurley, founder of Paying for tuition in Greece would depend on the type of program.

If a student enters a program through their own college, and pays tuition to the college for the overseas education, 529 money can be used, Hurley said. But if the student simply goes to a program overseas and pays that institution, the federal rules can vary.

The safest way to determine whether it is acceptable to use 529 money abroad, he said, is to check to see if federal financial aid is available to students studying in the institution that interests you. If financial aid is available there, Hurley said, it is probably OK to use 529 money for tuition.

Contact Gail MarksJarvis at or leave a message at 312-222-4264.

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