READ TIME: 4 MIN
Why sell shares when you can gift them? If you have appreciated stocks in your portfolio, you might want to consider donating those shares to charity rather than selling them.
The Advantages of Donating Stocks Over Selling
Donating appreciated securities to a tax-qualified charity may allow you to manage your taxes and benefit the charity. Holding the stock for more than a year could allow you to deduct its fair market value from your taxes in the donation year. A tax-exempt charity might avoid capital gains tax on the stock when sold in the future.
Keep in mind this article is for informational purposes only. It’s not a replacement for real-life advice. Make sure to consult your tax and legal professionals before modifying your gift-giving strategy.
There are several reasons to consider donating highly appreciated stock to a tax-exempt charity. For example, you may own company stock and have the opportunity to donate some shares. There also are potential tax benefits to consider if you donate appreciated securities that you have owned for at least one year.
If you sell shares of appreciated stock from a taxable account and then donate the proceeds to charity, you may face capital gains tax on any realized gain. This tax effectively reduces the benefit of your cash donation.
Tax Benefits of Gifting
When is donating cash a choice to consider? If you provide the charity with a cash gift, there may be some limitations. Cash gifts are generally deductible up to 50% of adjusted gross income. As an example, if a donor in the top 37% federal tax bracket gives a 501(c)(3) non-profit organization a gift of $5,000, the net may be $3,150 with $1,850 realized in tax savings. A donor should also need to consider state taxes in addition to federal.2
If you donate shares of depreciated stock from a taxable account to a charity, you can only deduct their current market value. This value is not the same as what you originally paid for them
Remember the tax rules for charitable donations. If you donate appreciated stock to a charity, you may want to review IRS Publication 526, Charitable Contributions. Double-check to see that the charity has non-profit status under federal tax law. Be sure to record the deduction on a Schedule A that you attach to your 1040.
If your contribution totals $250 or more, the donation must be recorded. This means the charity should provide you with a written statement that describes the donation’s value and whether it offers goods or services in exchange.
If your total deduction for all non-cash contributions in a tax year exceeds $500, then complete and attach Form 8283 (Noncash Charitable Contributions) to your 1040 when filing. If you donate more than $5,000 of property to a charity, you will need to provide a letter from a qualified appraiser to the charity (and by extension, the IRS) stating the monetary value of the gift(s).2
Preparing for Changing Tax Laws in Charitable Giving
Gifting cash or other assets to an organization is a wonderful opportunity. Keep in mind that tax rules are constantly being adjusted! There is a possibility that the current rules may change. Make certain to consult your tax and legal professionals before starting a new gifting strategy.
