Many people like to give to the poor, but like all things related to money, taxes are something always coming to mind even when your client is doing charitable work. The reasoning behind that in order to give money, your client needs to have money. Recognizing this, IRS has decided to cut some breaks to the taxpayers. Like almost everything else pertaining to taxes, it can be a complicated procedure to take advantage of these breaks.
The IRS allows your client to deduct the cost of the stocks that they contribute to a charity. In order to save even more money, your client needs to know what kind of stocks they are giving away to charity. Short-term gain on stocks (stocks held for less than a year) is only deductible at the price they bought the stock at. Long term gain on stocks (stocks held for more than a year) is deductible at the fair market value of that stock, including all the appreciation it has gone through since your client bought it.
Never give away stocks that are losing your client a lot of money or stocks that are appreciating too quickly. Your client may be better off selling stocks that are losing him or her money and claiming them as capitol loss. After that your client can contribute the money to the charity for a contribution deduction. Stocks that are making a lot of money may have appreciated so much and is such a large stock that its value is worth more than 30% of your client's adjusted gross income. Your client cannot contribute more than 30% of their gross income to receive the contribution deduction.
