Take Stock, Give Stock: Why Donating Stock to Charity is Truly Magic

December 1, 2020
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The end of the year often means family time, celebrations, and holiday traditions. It’s also a time of expanded generosity. Studies show that close to 50 percent of charitable gifts are given in December. Year-end tax benefits may drive it, but the end of the year is also when many people reflect and take stock of their lives. What if there was a way to increase the impact of your donation, a strategy that would yield a greater benefit for charity, and you? 

That strategy is to donate stock. The reality is that donating stock is almost always better than donating cash. Donating stock directly to charity is a tax-smart way to give, yet many people don’t consider it an option for charitable giving. 

According to a 2016 study, 80 percent of donors own appreciated assets, such as stocks, mutual funds, or bonds, but only 21 percent of those donors have contributed these types of assets to charity. 

Four Reasons to Consider Donating Stock

It can increase your donation

If you donate stock that has appreciated for more than a year, your gift will be 20 percent more than if you sold the stock and then made a cash donation. Why? By donating stock, you avoid capital gains taxes. The maximum federal capital gains tax rate is 20 percent on long-term holdings. If you are likely to realize a taxable profit on the sale of assets you purchased in the past five years but donate the stock directly to a charity, there’s no capital gains tax to pay. Plus, you are still eligible to deduct the full fair-market value of the asset you donated from your income taxes, up to the overall amount allowed by the IRS. 

It’s an easy process

If you’re worried that donating stock will be complicated and time-consuming, you don’t have to be. A donor-advised fund, like the Charityvest, takes the hassle out of donating stock.

A donor-advised fund is like a charitable investment account that can be used exclusively to support charities. Instead of donating multiple stock blocks to numerous charities, you make one donation used to fund your Charityvest Account. There is one form to file with your tax return instead of many.

And if you’re not sure which charity should receive your appreciated stock, you don’t have to decide immediately. Donating stock to a donor-advised fund allows you to deduce the current tax year and then support as many charities as you would like over time by recommending grants on the timetable that makes the most sense to you.

To be eligible for a charitable deduction for a tax year, donations of stock need to be received by the end of the year. Because different assets take different amounts of time to be transferred, you should initiate your transactions as early as possible.

Donating stock takes tax liability out of your portfolio

Having a highly appreciated position in a portfolio is great...until the investor is ready to sell that position. The long-term capital gains tax rate is 0, 15, or 20 percent, depending on your taxable income and filing status.

Donating that highly-appreciated stock to charity removes that liability entirely, enabling you to make your desired donation, deduct the value of the grant from your adjusted gross income, and not have to worry about the capital gains tax they would otherwise have had to pay if they’d sold the stock.

With a donor-advised fund such as Charityvest, the investor can move appreciated stock into the fund without any tax penalty and then decide how to donate assets in the fund to charitable organizations. 

There’s a better way to use your cash

Donating stock from a portfolio, then depositing into the portfolio an amount of cash equal to the value of the stocks gifted can set you up for future tax-saving opportunities. For example, you could use the deposited cash to purchase stocks that allow the portfolio to maintain your chosen market exposure but have a higher cost basis than the gifted shares. This higher-basis investment increases the eventual tax-loss harvesting potential, which should help reduce future tax payments.

When it comes to making charitable gifts, it’s tempting to simply write a check, but cash gifts aren’t the only option. They may not even be the best option. Giving appreciated stock can provide you with better tax savings and increase your contribution by as much as 20 percent. The streamlined process at Charityvest makes it easy for you to create magic by donating your publicly-traded securities to make the world a better place. 

Charityvest is founded on the premise that giving is good for the world; it should be easy; it should be free and efficient; it should be about giving churches and nonprofit organizations the resources to do good. It’s that simple.

Create your Charityvest giving fund—it's free and takes 90 seconds.

Stephen Kump

Stephen is the chief of promoting generosity @ Charityvest. Former Bain consultant, philanthropic advisor, and military officer. Yale MBA.

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