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Tax Tip: Donate Stock To Charity

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Tax Tip: How to Donate Stock to Charity

You can do good and get a tax break. Here’s how.

Every year, millions of Americans and American companies donate to worthy charities. Not only can the money do good for the community, but donors are often entitled to valuable tax breaks in exchange for their charitable gifts.

Many people simply write checks to their favorite causes. But if you own shares of companies that have risen in value over the years, then donating stock to charity can be an even smarter way to give.

Why donating stock to charity is smart

Everyone wants to own investments that grow, but in many cases, you have to share the profits from your stock positions with the IRS. When you sell a stock in a regular taxable brokerage account, you’ll owe taxes on the capital gains, or the difference in what you received in sales proceeds compared to what you paid for the stock when you first invested in it.

The taxes on those gains depend on how long you’ve held the stock. If you’ve owned it for a year or less, then you’ll pay your ordinary income tax rate — currently, as high as 37% — on the gains. If you owned it longer than a year, lower long-term capital gains rates apply, but they can still take away up to 20% of your profits.

If you give stock that you’ve owned longer than a year to charity, though, you can deduct the full market value of the stock as an itemized charitable deduction. That not only avoids the capital gains liability you’d owe on the stock if you sold it, but also maximizes the tax deduction you’re allowed to take.

How to make your stock gift

Making a stock gift is a little more complicated than taking out your checkbook, which is why we invented CharityEvo.

The first step is to contact the charity receiving your donation. Find out whether the charity has a brokerage account to accept shares of stock that you want to donate. If it does, you’ll need the charity’s brokerage account information to complete the rest of the process.

Next, talk to your financial institution to find out what they need to get the shares transferred. Usually, the instructions the charity gives you will be enough for your brokerage company to get its side of the process done. You’ll also likely have to complete some paperwork in order to authorize the stock donation.

If you’re doing this near the end of the year, be aware that this is a very busy time for brokerage companies to handle stock gifts. Many institutions have deadlines well before Dec. 31 to request charitable stock gifts, so don’t wait until the last minute. Or just contact CharityEvo.

Something to consider if you expect to make charitable gifts every year

The tips above apply to those making one-time stock gifts. However, there’s a more sophisticated choice available to those with longer-term charitable aspirations: contributing stock to a donor-advised fund.

Working with a donor-advised fund typically involves making a sizable upfront gift of stock. You get an upfront tax deduction for the full amount of the gift, but you don’t have to donate the full amount to charity right away. Instead, the donor-advised fund is a separate entity that holds the funds, accepting your recommendations for how and when to make gifts to qualified charities.

Using the donor-advised fund strategy lets you get larger charitable deductions faster than simply giving stock year in and year out. Moreover, because you have to itemize your deductions to claim a tax break for a charitable gift, the strategy is often the best way for those who want to make modest gifts to maximize their tax benefits. However, there are extra fees that most financial institutions charge to their donor-advised fund clients, so you’ll need to check whether the extra tax breaks are worth the added expense.


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