Two neighbors, "George Greenback" and "Dottie Daytrader," decided to donate to a local charity. Mr. Greenback made his gift in cash, sending the charity a $10,000 check. Because he submits itemized tax returns and he is in the 33 percent income tax bracket, Mr. Greenback can look forward to saving $3,300 in taxes. Therefore, his gift to charity will cost him only $6,700.
Dottie Daytrader invested $5,000 in securities that have grown to a value of $10,000 in 16 months. When she made a direct gift of her securities to charity, she entirely bypassed the capital gains tax. Mrs. Daytrader receives an income tax deduction for a gift of $10,000, which saves her $3,300 in taxes (she is in the 33 percent tax bracket). In addition, she also has saved $1,000 in capital gains taxes (her $5,000 profit from her appreciated securities would have been taxed at a 15 percent rate). Therefore, it only cost Dottie $5,700 to make a $10,000 donation.
As this example illustrates, gifts of assets such as securities offer greater benefits to donors than gifts of cash.
