Donating Appreciated Stock to Charity

Donating appreciated stock to charity is a strategic and effective way to support the causes you care about, while also enjoying significant tax advantages. By donating stock that has increased in value, you can potentially avoid capital gains taxes and receive a tax deduction for the full fair market value of the shares. This article will explore the benefits of donating appreciated stock, explain the process, and provide essential tips for maximizing your giving and your tax benefits.

Understanding Appreciated Stock

Appreciated stock is stock that you own that has increased in value since the date you bought it. When you sell stock, you must often pay capital gains tax, which is a tax on your profits. However, you can potentially avoid paying capital gains tax by donating your appreciated stock directly to a charity.

The Benefits of Donating Appreciated Stock

There are several reasons why donating appreciated stock can be a powerful giving strategy:

• Avoid Capital Gains Taxes: By donating appreciated stock directly to a qualified charity, you can avoid paying capital gains taxes on the increase in value, allowing more money to be given to charity.
• Tax Deduction: You may be able to deduct the full fair market value of the stock at the time of donation. This deduction can help lower your overall tax burden.
• Increased Giving Potential: By avoiding capital gains tax and receiving a deduction, you may be able to make a more significant gift to the charity you are supporting.

How to Donate Appreciated Stock

Donating stock is not as complicated as you may think, and there are many ways to make it a quick and easy process. Here is what you need to know:

• Verify Eligibility: Make sure you are donating to a qualified charity that is authorized to receive your donation. Most 501(c)(3) organizations will be able to receive a stock donation.
• Transfer Directly: Never sell your stock and then donate the proceeds. You should make arrangements for the stock to be transferred directly to the charity from your brokerage.
• Notify the Charity: Let the charity know of your intention to donate stock, so that they can provide you with the information they need for your transfer.

Important Tax Considerations

Understanding these tax rules is key to maximizing your benefits:

• Holding Period: To qualify for the most significant tax benefits, you should hold your stock for more than one year. If you hold it for less than a year, you will only be able to deduct the cost basis, not the fair market value.
• Fair Market Value: You can generally deduct the fair market value of the stock at the time of donation, up to 30% of your Adjusted Gross Income (AGI).
• Documentation: You will need to keep records of the donation, the date of donation, the number of shares, and the fair market value at the time of donation. You will also need to secure a receipt from the charity.

Strategic Planning for Stock Donations

Here are a few things to remember when planning a stock donation:

• Consider Your Portfolio: It can often be beneficial to donate your assets that have increased the most in value, in order to offset the capital gains tax.
• Diversify Your Giving: Donating stock to different charities can help you to diversify your giving, and reach different areas that are meaningful for you.
• Year End Planning: The end of the year is often a great time to donate stock, as this donation may help reduce your tax burden for that specific year.

Wills.com and Your Charitable Plan

Wills.com helps you integrate your charitable giving into a long term plan that protects you and your loved ones, while also supporting the causes you care about. Our platform enables you to clearly document your preferences, including donating stock or other assets to charity, through a charitable bequest in your will, or a trust that benefits charitable organizations. We also provide the ability for charities to sign up for a Charity Business Account, to help them connect with all of their supporters through our platform.

Frequently Asked Questions

Q: What does it mean for stock to be “appreciated?”

A: Stock is appreciated when its current market value is greater than the price you originally paid for the shares.

Q: What is the benefit of donating stock rather than cash?

A: By donating stock you can potentially avoid paying capital gains taxes, while also claiming a tax deduction. You are also providing the charity with an asset that they can sell to benefit their mission.

Q: Do I have to itemize my deductions to deduct a stock donation?

A: Yes, you must itemize your deductions rather than take the standard deduction to claim a deduction for a charitable donation.

Q: What documentation is needed for a stock donation?

A: You need documentation from the charity, including the date of the transfer, the number of shares, and the fair market value. You should also retain records of when you purchased the stock.

Conclusion

Donating appreciated stock to charity is a strategic way to support the causes you believe in, and to reduce your tax burden. By taking advantage of the unique tax benefits associated with stock donations, you can make a greater impact on the causes you care about, all while creating a solid financial plan for yourself and your family. Make a plan today to give strategically and empower the charities that are working to make the world a better place.

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Disclaimer: This article is for informational purposes only and does not constitute legal advice. For personalized guidance, consult an attorney or visit the Wills.com Learning center.