Over the weekend I spent some time scanning and shredding my backlog of financial paperwork. While doing this, I ran across a document from the Vanguard Charitable Endowment Program explaining how to value donations for tax purposes. Given that there are a few wrinkles, I thought I’d write up some general guidelines.
As a reminder, we’ve used Vanguard’s donor advised fund to donate appreciated mutual fund shares instead of cash. This provides a dual benefit in that you get a tax deduction plus you wipe away the associated capital gains liability.
For cash donations, the rules are simple. The value of your donation is the amount of cash that you donated and the date of the contribution is the date when you made the contribution (i.e., the date you sent the check or made the wire transfer). Note that it’s your responsibility to provide evidence of the date if the IRS asks for it.
For mutual fund shares the value is based on the closing price (net asset value) on the date on which you lost control of the donated shares. To arrive at the total, multiply this value by the number of shares donated. Note that the date you lost control can be difficult to pin down.
The date you lost control of your mutual fund shares is not the date you instructed your broker to make the transfer. Rather, most donors use either the date the shares left their account or the date they were received by the charity. Either seem to be acceptable — assuming in the former case that you can no longer recall the shares once they’ve left your account.
For stock or bond certificates you estimate their value by averaging the high and low prices on the date of your contribution. To arrive at the total, simply multiply that average value by the number of shares donated. In this case, the date of contribution is the mailing date and, once again, it’s up to you to provide evidence of this date if the IRS asks.
And finally… Stock or bond shares delivered electronically. Here again, you estimate the value/share by averaging the high and low prices on the date of your contribution and multiply by the number of shares donated to arrive at the total. In the case of electronic delivery, the transfer date is typically determined as the date the shares leave your account or the date they’re received by the charity.
As for us, the transfer was essentially made in-house (from Vanguard to Vanguard Charitable) so it happened all at once and the date was very easy to determine.
Something else to consider is that, unless you’re donating your entire position in a certain investment, you’ll (probably) want to specifically identify the shares that you’re donating. This allows you to pick and choose the shares with the lowest cost basis, thereby maximizing the gains that you’re wiping away.
You’ll need to work with your broker or mutual fund company to determine how best to document your wishes with regard to specific ID of shares. Just keep in mind that you need to do this on the front end of the transaction, not after the fact. Be sure you get a written response so you have paperwork in case the IRS asks questions.