Stock Donations: The Most Tax-Efficient Way To Donate Money

No one likes to pay taxes, especially in these turbulent economic times. With millions of Americans laid off due to the COVID-19 crisis, and millions more hurting due to slowdowns in their business, the economy is in deep trouble.

This affects everyone, and it’s never too early to start end-of-year planning to make sure that next year’s taxes don’t create yet another personal crisis for your family. Charitable donations are a great way to deduct more from your taxes – and of course, an excellent way to put your funds behind an institution or cause you care deeply about. 

But as more and more Americans are coming to realize, cash donations are not the most tax-efficient way to donate to charity. By donating appreciated stock instead of cash, you increase your write-off, and increase the amount of money in the organization’s pocket. Everybody wins. 

The Benefits Of Donating Stock

The biggest benefit of donating stock is that you avoid paying capital gains tax. 

Let’s say you have a healthy stock portfolio, including stocks that you have held for at least a year and have appreciated in the amount of $10,000. Looking at your income and deductions for the year, you decide that this $10,000 is best used as a year-end gift to a charitable organization. 

If you sell the stock, you will have to pay capital gains tax up to 37%, in this case $3,700. That leaves you with $6,300 to donate to the organization of your choice and take as a deduction on your taxes. 

Instead, if you donate the stock directly to the organization, you bypass capital gains tax. The organization keeps the full $10,000, and that’s the amount you write off on your taxes. 

That’s a huge difference for an organization – potentially funding increased programming, hiring of new staff, building maintenance, and more. And at the same time, it’s saving you money. Win-win!

Things To Consider

It’s best to donate appreciated stock that you have held for a year or more. This will save you the most on your taxes.

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You’ll also want to make sure you are taking an itemized deduction to see the full value of your contribution. If you take a standard donation, this contribution won’t be counted. 

It is better not to donate losing stock. If you’d like to unload some of your losing stock, it’s best to sell it, take the capital loss, and donate the cash value to charity directly. This will help you balance your portfolio against potential gains. 

You may be happy with your stock portfolio as it is – many people have stock portfolios that they love, and wouldn’t want to change. Donating stock as a year-end gift can provide a great opportunity to review the balance of your portfolio. You can buy up additional stock to replace the donated shares, and offloading some of your appreciated stock will void gains in the future. 

How To Donate Stock

If you’re planning to manage your stock donation yourself, make sure you allow plenty of time before the end of the year. You’ll want to reach out to the charitable organization and make sure they are set up to accept stock donations, and have an expert on staff who can guide you through the process. There’s nothing worse than having your donation processed on January 2 instead of December 30, so make sure you are proactive about your major year-end contribution. 

However, you can also use a stock donation service to streamline the process, making your donation much easier for you and for the organization. For example, Cocatalyst is a tool to make donations from your broker to charity

If you’d like to donate stock through Cocatalyst, all you have to do is visit their donor page, fill out their form, and complete the signature. The organization you’re donating to can set up a profile as well (if they haven’t already), so that Cocatalyst can handle all of their stock donations for them. 

It’s completely free to use – and eliminates any hassle you might worry about in the stock donation process. Donating stock to a church is a similar process.

In Conclusion…

Stock donations are far more tax-efficient than cash donations, and you’ll be glad you went this route come tax season. Many organizations already accept stock donations – but even if you want to donate to one that doesn’t, they’ll be thrilled to learn about the ways they can take home a bigger piece of the pie. The process can be simple through streamlining services, and it’s a win for both you and the organization. Take advantage of this if you possibly can!


Disclaimer: This content does not necessarily represent the views of IWB.


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