We all know how to donate cash to charity, but there’s another way that you can support your favorite causes: donating your stock.
Many non-profits appreciate and are set up to receive stock gifts. That’s because the dollar amount they receive from stock can be larger than if a donor first sold the stock and gave the resulting cash. Here’s why: stock owners don’t have to pay capital gains taxes on donated securities they’ve owned for over a year and that has risen in value; thus, they’re able to donate the full market value of the stock.
As an example, say you donate to UNICEF an appreciated security you’ve owned for over a year that originally cost $75 but is now worth $100. UNICEF can immediately convert the stock into $100 in cash to support its activities. However, if you first sell the asset for cash, you’ll likely have to pay 15-20% in tax (depending on your income), thus reducing the amount you can donate and put to work for good.
The benefit to the charity of receiving more funds is clear. But there’s additional good news for donors: you can itemize the fair market value of that $100 gift as an income tax deduction within certain limits. Also, once you donate the stock, you can turn around and immediately purchase more shares of the same company, putting you in the same position investment-wise but eliminating or reducing future capital gains taxes on the investment.
Now that we’ve talked through the why, what about the how? One of the most flexible ways to donate stock is through a donor-advised fund (DAF). Check out our article here on the ins and outs of DAFs. Essentially, when you create and use a DAF, you can put aside securities for charitable use, but without needing to know the specifics yet of how they’ll be allocated. Other ways are to transfer a physical certificate or use a digital brokerage. We’re here to discuss all of the options with you should you decide that donating stock is the next step on your financial path.
When might donating stock not be a strategic choice? That’s easy—when the stock has decreased in value, and you get no capital gains tax benefits. At that point, the charity, of course, still benefits from any amount you give, but whether you donate stock or cash, it makes no difference.
So next time you’re ready to make a charitable donation—but want to be strategic for both the charity and yourself—remember that giving securities is a viable, and sometimes even superior, option. If you'd like to learn more about how to maximize your generosity in the context of your financial situation, please don't hesitate to give us a call.