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Due to rising interest rates over the past year, 21 percent of people contributed more to stock-related investments and 27 percent are expecting to contribute more, according to a May 2023 Bankrate survey.
Many people make charitable donations to support causes they believe in, but few realize it’s possible to donate stock instead of cash. Donating stock can have tax advantages for you, while also allowing your charity to receive more.
Despite these advantages, not everyone knows how donating stock to charity works or that it’s even an option. Here are some of the advantages of donating stock and how it works.
Monetary charitable donations statistics
- Six out of ten American households participate in some sort of charitable giving, according to The Philanthropy Roundtable.
- High net worth families donated, on average, $29,269 in 2020. Among the rest of the general population, that figure was $2,514.
- States with the most generous donors are Utah, Wyoming, Minnesota, Maryland and Maine, as of 2022, according to WalletHub.
- The end of the year is a popular time to donate to charity: On average, nonprofits raise 26 percent of their annual revenue in December.
How charitable donations of stock work
People often think about donating cash to charity, but nonprofits can also accept donations in other forms. Cash, stock, cars — all of these have value — and charities are usually happy to accept them.
With stock, the process can be as simple as transferring shares from one brokerage account to another, and you can go this route each year, if you want.
However, you have another way to donate stock, particularly if you want to give over time. A donor-advised fund allows you to contribute a bunch of stock at one time and then disburse the gift over time.
“You donate stock to a donor-advised fund, snag an immediate tax deduction, sidestep the capital gains and then take your time deciding where that money should go,” says Sean Lovison, a certified financial planner and certified public accountant at Purpose Built Financial Services. “It’s a win-win for everyone.”
With a donor-advised fund, you can get a tax deduction for the full amount in the year you make the initial donation, but you don’t have to disburse the full amount immediately. Instead, you let the fund know how and when you want to make charitable gifts.
The donor-advised route can make sense if your primary goal is to max out your tax deductions in any single year. But you must itemize your deductions in order to claim charitable gifts, so this strategy can help put your contributions over the standard deduction amount.
Tax benefits of donating stock
When you donate stock to charity, it’s possible for both you and the charity to avoid any capital gains on the stock.
Normally, if you sell stock held in a brokerage account, you would be taxed on any appreciation in that stock. If you held it for a year or longer, you would have to pay the long-term capital gains tax rate of up to 20 percent. If you held it for less than a year, the gains are taxed as ordinary income, which can mean a rate as high as 37 percent in 2023.
To get the maximum tax benefit, an appreciated security must be held for at least a year before it’s donated to a charitable organization. If you own one of the best performing stocks, you might consider selling some of those shares.
If you donate stock that you’ve held for less than a year, you can still sidestep taxes on any gains, but the deduction will be limited to either the current market value of the stock or what you originally paid for it, whichever is less.
Generally, the tax advantages of donations are greater for the wealthy, as a large portion of their income could otherwise be subject to the 37 percent rate. However, even those with more modest incomes can benefit from donations.
“If you have a year where you’re hitting a higher tax rate, that’s a prime time to think about donating some stock,” says Lovison. “Bunching multiple deductions in a year when your income’s got a little spike, even a modest one, can be a powerful tool.”
Donating stock is especially beneficial when a stock has appreciated. You can claim a deduction for the value of the stock, legally avoiding tax, and the charity gets the full benefit of the stock. This way, the amount that would otherwise go to the IRS as taxes stays with the charity instead.
In any given year, you can deduct up to 30 percent of your adjusted gross income from donations. Any excess contributions can be carried forward on your tax return for up to five years.
Stock donations are also good for charities because they can avoid expensive tax bills. If the charity is a tax-exempt nonprofit, it will usually not have to pay any taxes on the donated stock. That is true even if the charity sells the shares for cash, due to its tax-exempt status.
How to donate stock to charity
The first step when donating stock is to check whether the charity you are considering can accept stock donations. Some nonprofits have this information on their website. If not, contact the charity and ask if they accept donations of stock. You may also need information like the charity’s brokerage account number and mailing address, so ask for this upfront.
If a nonprofit organization does accept stock, let your broker know you’d like to donate your shares to charity. Once you give them the charity’s information, the broker will be able to initiate the stock transfer.
When you donate shares of stock to charity, you’ll be required to fill out IRS Form 8283 when you file your income tax return.
To maximize the benefits of donating stock to charity, it’s wise to consult with a financial advisor or a tax professional to ensure IRS requirements are being met.
Keep in mind: You might encounter issues if you donate stock at the end of the year because brokerages are often overwhelmed with requests. Start the transfer well in advance, otherwise you might not be able to itemize the deduction for the current tax year.
When you shouldn’t donate stock to charity
While donating to charity is commendable, gifting stock doesn’t always make sense, particularly if the price of a stock you want to donate has declined in value since you bought it.
Instead, you can sell the stock and take a write-off for your loss on your taxes, a process called tax-loss harvesting. Then, if you want, you can donate the proceeds from that transaction.
Given the extra hassle of transferring stock, it may not make sense to donate stock if you only want to donate a small amount. As mentioned before, you can only claim a tax deduction for stock gifts if you itemize deductions on your tax return. If you are making a one-off donation, it may not exceed the standard deduction amount. So donating stock works best when it’s a sizable one-off contribution or a series of substantial contributions.
Also remember that the charity must be able to accept stock donations. If it can’t, it would be better to donate cash. In reality, most charities will just convert the stock to cash anyway to help fund their operations. So it’s also best to donate stock that has some degree of liquidity.
When in doubt, call the charity you want to donate to and ask them if donating stock is the best way to meet their needs.
How to donate to charities without having money
Donating stock is just one way to support your favorite organization. If you’re on a tight budget, there are other ways to make an impact.
Here are four ways to give back without donating money:
- Donate time: Most nonprofits are in desperate need of volunteers. Instead of writing a check, consider reaching out to a local charity to learn how you can donate your time.
- Donate items: Many charities accept donations of goods and property, such as cars, real estate and even household items. You might qualify for a tax write-off if you itemize your taxes. It’s also worthwhile to call a nonprofit and see if they need any specific items for day-to-day operations. Animal shelters, for example, can put dog food, cleaning supplies and old blankets to good use.
- Donate a skill: Matching your skill set with a nonprofit in need is another great option. If you love to cook, consider making meals at a homeless shelter. Or if you’re a marketing expert, you could help your charity improve their social media marketing campaigns. Identify what makes you unique, then find a cause that could use someone with your expertise.
- Take advantage of shopping smart: If you’re already buying Christmas gifts for your family, consider shopping at stores that donate a portion of sale proceeds to charity, or check to see if you can donate your credit card points to your favorite charity. You can also check to see if your bank gives back to worthy causes. Spring Bank, for example, directs 74 percent of its deposits toward community financing, ensuring that the bank’s funds are channeled back into the communities it serves.
Donating stock to charity has advantages for both the donor and the recipient. The donor can claim the full donation as a tax deduction, while the charity may not have to pay taxes if it’s tax-exempt. Many charities accept stock donations, but check with the organization you’re considering first.