Table of contents
Key Takeaways
- Tax Benefits: Giving appreciated stock to charity offers potentially significant tax advantages. Learn how this charitable giving strategy can maximize tax savings while supporting causes you value.
- Maximizing Impact: Discover how donating appreciated stock can amplify the impact of your charitable giving. By providing charities with the full value of the stock, you empower them to further their mission and programs.
- Simplicity and Convenience: Simplicity and Convenience: Explore the straightforward process of giving stock to charity. Many brokerage firms facilitate electronic transfers, making the donation process simple and convenient for donors. Additionally, you can utilize a donor-advised fund to have flexibility with your giving.
- Strategic Philanthropy: Incorporate giving appreciated stock into your charitable giving strategy. Align your donations with your investment portfolio, optimizing both financial and philanthropic goals.
- Long-Term Planning: Consider the role of giving stock in your long-term financial and estate planning. Explore how this strategy can help reduce taxable estate while leaving a lasting legacy for the causes you support.
A Smarter Way to Give Back
Ever notice how meaningful it feels to support a cause that truly aligns with your values? Giving is powerful on its own — but when your generosity can also be structured in a way that’s financially smart, the impact becomes even greater. What if there were a way to support your favorite charity while potentially reducing your tax burden at the same time?
That’s where donating stock comes in.
Donating appreciated stock to charity is one of the most tax-efficient giving strategies available, yet it’s still widely underutilized. Instead of giving cash, donating shares that have grown in value over time can allow you to support meaningful work while avoiding capital gains taxes and potentially receiving a charitable deduction for the full market value of the stock. It’s a strategy that benefits both the organization you care about and your overall financial plan.
In this post, we’ll explore why donating stock can be such a powerful giving tool and how it can help you make a bigger impact with the same dollars.
The Charitable Giving Landscape
It may be surprising, but most charitable donations are still made in cash. Nearly 75% of high-income taxpayers give to charity using cash, while only about 10% donate appreciated securities. This continues even though donating stock can offer meaningful tax advantages.
When you donate appreciated stock directly to a qualified charity, you can generally deduct the full fair market value from your taxable income. At the same time, neither you nor the charity pays capital gains tax on the appreciation. That means you’re able to give more to the cause you care about—without increasing your out-of-pocket cost.
Donating stock is also often more efficient. Instead of selling the shares, paying capital gains tax, and then donating the remaining cash, you can transfer the shares directly to the charity in one step.
Giving is already deeply rewarding for many people. When you can amplify that impact through smart tax-efficient strategies, it becomes a true win for both the giver and the organization receiving the gift.
Benefits of Donating Stock to Charity
Let’s now talk about the key reasons why giving stock to charity is a tax-efficient strategy that could potentially enhance your philanthropic impact.
Avoiding Capital Gains Taxes
One of the primary benefits of giving stock to charity is the potential to avoid capital gains taxes. By donating stock that has appreciated for more than a year, you can avoid paying capital gains tax, which can be as high as 20% for long-term holdings. This means you are effectively giving 20% more to your chosen charity than if you had sold the stock and donated the cash after paying capital gains taxes.
Reducing Future Capital Gains
Donating appreciated shares and then buying new ones resets your cost basis at the current, higher price. This strategy reduces your future capital gains tax exposure if the stock continues to appreciate in value over time. It’s a win-win situation! You can maintain your belief in the stock and also reduce the tax impact of potential future gains.
Rebalancing Your Portfolio
Donating stock can be an effective way to rebalance your portfolio. If your portfolio has drifted from its target allocation due to significant gains in certain investments, donating stock can help bring it back into balance. This strategy allows your capital gains to fund your philanthropy rather than the IRS.
Simplifying the Donation Process
Many people shy away from donating stock because they perceive it to be a complex and paperwork-heavy process. However, using a donor-advised fund can simplify the process. A DAF (donor-advised fund) acts as a charitable investment account. It allows you to make a single donation that can then be distributed to various charities over time.
What is a Donor Advised Fund
A DAF (Donor Advised Fund) is a private fund for charitable purposes. It allows individuals and families to create an investment account for philanthropy with flexibility because it accepts small amounts of money and can hold funds long-term without distributing to the charity right away. You can distribute the fund to your favorite charity when desired over time.
Navigating the Donation Process & Practical Tips
Understanding the process and regulations around giving appreciated stock to charity can help maximize the benefits for both you and the recipient charities. Here are some practical tips to guide you:
Be Aware of Tax Laws
Tax laws and deduction limits fluctuate over time, so it’s crucial to stay up-to-date. For instance, you might have been able to take advantage of the higher limits provided by the CARES Act in 2020 and 2021. However, as we return to pre-pandemic limits, it’s a good time to refresh your understanding of the rules and keep track of any changes going forward.
Understand Deduction Limits
Deduction limits vary depending on the type of donation (cash or securities) and the type of charity (public or private). Here’s a simple breakdown for donations to public charities:
- Cash donations: You may deduct up to 60% of your adjusted gross income (AGI).
- Securities donations: You may deduct up to 30% of your AGI.
- Combination of cash and securities: The limit for cash remains 60% of AGI, but the deduction for securities is limited to the lesser of 30% of AGI or 50% of AGI minus the amount of cash that is deducted.
Plan Your Donations
Carefully planning your donations can maximize your tax benefits. Depending on your income and how much you decide to donate, you can take a different approach to which donation will be most efficient in tax savings.
For example, if your donations will total up to 30% of your AGI this year, consider making those donations entirely in securities. However, if you plan to donate between 30% and 50% of your adjusted gross income, you should consider donating 30% of AGI in securities and the remainder in cash.
Plan Your Donations
A CPA or a financial planner can help identify the most tax-efficient giving strategy for your specific circumstances. They can clarify whether the capital gains tax savings from donating stock outweigh the benefit of the higher deduction available for cash donations.
Making the Most of Your Charitable Giving
Embracing charitable giving strategies such as donating appreciated stock can result in potentially significant tax savings, making it a highly beneficial approach for both donors and charitable organizations. By donating your stronger performing holdings and using donations to rebalance your portfolio, you can leverage opportunities to achieve greater tax savings—proving that philanthropy can be both beneficial and rewarding.
Remember to consult with a tax professional or a financial advisor, specialized in philanthropical financial planning. You want to make sure you’re making the most of your charitable giving strategies while not making costly mistakes. Happy giving!
- Tax Advantages of Donating Stocks ↩
- Capital Gains Tax Rates ↩
- Donor-Advised Funds ↩
- CARES Act and Charitable Giving ↩
- IRS Deduction Limits ↩
If you are interested in learning more about philanthropical financial planning, contact us today. We would love to help you build a strategy to make a bigger impact with tax savings to your favorite charity.
Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risks, including possible loss of principal.