Bill and Melinda Gates’ favourite tax loophole

It’s that time of year when many of us are particularly aware of those who are less fortunate than us. While I think it is important to be generous with time and money all year round, there’s something about the holiday season that brings out more generosity in all of us.

If you’re like me, you may be considering selling some of your winning stock positions and donating at least a portion of your profits to a deserving charity.

Don’t do it!!

Please don’t get the wrong impression. I definitely want all of us to be generous this holiday season. In fact, I’m going to challenge you today to find a special cause that is close to your heart to donate your time or money to.

But if you sell shares of a winning stock and give the proceeds to a charity, you’ll actually be forfeiting part of your profits in tax. That’s because you’ll have to pay taxes on any gains you have when you sell your shares.

But you can completely avoid paying taxes on your stock gains by making one small change to your charitable gift.

I learned this trick as a hedge fund manager when one of my clients decided to make a generous donation. By using this special tax loophole, my client was able to be more generous with his donation, keep more money in his own account.

This is also the same strategy that Bill and Melinda Gates used to donate billions of dollars to their charity recently.

Donating shares saves taxes and leaves you more to give

When you sell shares of a profitable stock, you naturally have to pay taxes on your gains. After paying capital gains taxes, there’s less money left over to pay to your charity.

But if you donate your shares of stock instead, you’ll be able to completely avoid capital gains tax!

Here’s how it works…

Most legitimate charitable organisations have special brokerage accounts set up to be able to receive stock donations. You can simply instruct your brokerage to transfer a certain number of shares to your particular charity.

When the transfer is made, you can record the stock price on the day of transfer. This price (times the number of shares that you donate) allows you to calculate the value of your charitable donation.

If the charity is a registered organisation, you’ll still be able to write off the value of your donation. This will reduce your own tax bill and leave you with more money for expenses or to give away. At the same time, your charity will be able to sell the shares of your stock and keep the full value of the shares (without paying taxes).

Perhaps you may also have some unwanted or even forgotten shares that you could donate to charity.

So if you have it in your heart to be generous this holiday season, the gift of stock shares will actually allow you to be more generous, while paying less in taxes.

That’s all from me today. Have a great week!

1 Comment
  1. Martin Kent 1 year ago

    In the UK you can do the same sort of thing but it looks to me, a non expert, that it is slightly different.

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