Charitable donations often take the form of food drives, clothing donations and giving cash to a nonprofit. But did you know you could also donate stocks directly to charity? While you could always sell your stocks and donate the proceeds, it might make more sense to donate the stocks themselves. It can greatly benefit the organization and can prove to be a smart tax move for you, too.
How to Donate Stock to Charity
Your first step in donating stock is to determine which stocks you want to part with. This is partly a matter of personal preference, and partly a question of tax implications.
Your best bet is to look for stocks that you bought at least a year ago and have risen in value since you bought them. Not only will that make for a more worthwhile donation, but it also means you get to avoid paying a capital gains tax on the stock’s appreciation. If you have a financial advisor, it may help to get them involved in this process early on. That way, they can start by choosing the best stocks for you to donate.
You’ll need to contact your brokerage firm or investment advisor for the exact actions required of you to send your stocks. This usually involves filling out a transfer form. The forms and documentation required can vary depending on your stock broker.
Next, you should reach out to your charity of choice and double-check that they do receive stock donations. Even if they haven’t receive stock donations before, they may still be willing to accept yours. Also be sure to ask how they accept stock gifts. It may be through electronic transfer or by physically mailing paper certificates. This is also a good time to let the organization know the name of the stock you’re sending, the number of shares and the date they should arrive. That way, the organization will know exactly who sent the donation and its exact terms.
Once the donation is complete, have your charitable organization send you a confirmation letter. Make sure it includes the date of the donations receipt and the total amount donated. This will come in handy when you file your donation for an itemized tax deduction.
It’s important to note that there is a limit on how much you can deduct. You can deduct up to 30% of your adjusted gross income (AGI) for stock donations each year, while that limit increases to 60% of your AGI for cash donations.
Another way to donate stock to charity is by opening a donor-advised fund through your brokerage firm, mutual fund company or community foundation. This fund is like an investment account you dedicate to supporting charitable causes. These accounts are handy in case you can’t decide which organizations to give to. Here, you make one donation into your donor-advised fund. Once you’ve funded the account, you have plenty of time to decide how and where to split your stocks up.
You qualify for your tax deduction on the date your make your lump sum donation into the account. You just need to make your donation by December 31 for your deduction to be eligible for the current tax year. Donor-advised funds also limit your tax paperwork by streamlining your donation receipts and forms into one, rather than multiple forms from various charities.
When Does Donating Stock to Charity Make Sense?
Donating stock to charity makes the most sense when you donate appreciated stocks that you bought at least a year ago. That’s a good place to start because it means you can avoid a capital gains tax. The capital gains tax rate on long-term investments is 0%, 15% or 20% depending on your taxable income and filing status. For example, if your rate was 20% and you donate stock, your donation becomes worth 20% more without the capital gains tax that would have decreased your earnings had you sold the stock and then donated the cash.
If your chosen stock has lost value since you bought it, however, you’ll do better to sell the stock and then donate the proceeds. That way, you can use the capital loss tax deduction and a charitable donation deduction.
Giving away your well-performing investments may not be your first choice when it comes to donating to charity. However, donating your stocks can not only benefit a charity, but it can benefit you immensely around tax time. Choosing the right stocks is key, so you may want to enlist a financial advisor’s help.
Tips on Investing
- Investing can be complicated and intimidating. If you want to start investing but don’t have the know-how, consider a robo-advisor. A robo-advisor determines your goals and risk tolerance and then uses an algorithm to build a portfolio that fits your needs. Some robo-advisors may require thousands of dollars to get started. But there are many others, like Ellevest, that allow you to start investing with any amount.
- Whether you’re buying stocks or trying to figure out the tax implications of your investments, you may want to seek out a financial advisor. Our advisor matching tool can help you get started by connecting you with qualified advisors in your area.
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