The Power of Donating Stock to Charity

By Hazel Secco, CFP®, CDFA®

Ever thought about how good it feels to support a cause close to your heart, especially when it aligns perfectly with your values? Well, what if I told you there’s a way to give back to your favorite charity while also getting potentially significant tax savings for yourself? Intrigued? Let’s dive in and explore how you can make an impact while keeping more money in your pocket!

Donating stock to charity is like killing two birds with one stone. Especially if your stocks have appreciated in value over time, giving appreciated stock to charity is one of the most tax-efficient charitable giving strategies. This method not only benefits the recipient charity but also offers potentially significant advantages to the donor. This blog post will discuss benefits of giving stock to charity, providing an in-depth understanding of why it’s a strategy worth considering.

Key Takeaways

1. 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.
2. 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.
3. 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 donor advised fund to have flexibility with your giving.
4. Strategic Philanthropy: Incorporate giving appreciated stock into your charitable giving strategy. Align your donations with your investment portfolio, optimizing both financial and philanthropic goals.
5. 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.

The Charitable Giving Landscape

It’s quite surprising that many people still prefer to donate cash over securities despite the clear benefits of donating stocks over cash. Almost 75% of high-income taxpayers give cash to charity, but only about 10% donate marketable securities. This trend continues even though donating appreciated securities can bring potentially significant tax advantages.1.

When you donate appreciated stocks to a qualified charity, the fair market value is deducted from your taxable income. In addition, neither you as a donor nor the charity will need to pay taxes on the capital gain. Therefore, you can make a bigger impact with your charitable donation by donating your stocks instead of cashing them in and donating the proceeds.

Donating to a charity can feel rewarding to many. If donating stocks rather than cash can make a bigger impact with the same amount of money, that would be a win win situation.

Benefits of Donating Stock to Charity

Let’s delve into 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 holdings2. 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 reset 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 taxman.

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 process3. A DAF (Donor advised fund) acts as a charitable investment account, allowing 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 if not wanted. 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 20214. 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)5. 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.

Seek Professional Advice

A tax professional can help identify the most tax-efficient giving strategy for your circumstances. They can clarify whether the capital gains tax savings from donating stock outweigh the benefit of higher deduction available for cash donations.

Conclusion: 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 organization. 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, it’s always advisable to consult with a tax professional or a financial advisor, specialized in philanthropical financial planning, to ensure you’re making the most of your charitable giving strategies. Happy giving!

1. Tax Advantages of Donating Stocks ↩
2. Capital Gains Tax Rates ↩
3. Donor-Advised Funds ↩
4. CARES Act and Charitable Giving ↩
5. 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.