The holiday season is the time of year to give back. But there’s one thing you may not have thought of giving: stocks.
Stocks are the gifts that keep on giving, for both the donor and the person receiving the donation. That’s right: donating your stocks might actually help reduce your taxes.
Why donating stocks is a great option
- More doable than a cash donation
Want to give to your favorite charity but don’t have enough money? Give a stock instead. For most people, the value of their stocks is actually higher than the amount of money they have in their bank account (and can afford to part with).
- Skip capital gains tax
If your stocks have risen in value since you bought them, and you’re donating them to a 501(c)(3) organization, you don’t have to pay capital gains tax on the amount you made. On the other hand, if you sell your stock and donate that money, you’ll still have to pay capital gains tax (20% if your stock appreciated for more than 12 months).
- Get a tax deduction
When you donate to charity, you can deduct the stock’s full fair market value, up to the amount allowed by the IRS.
Pro-tip
What if you want to keep your stocks but also avoid the capital gains tax? Try donating shares of your stock to charity, rather than the actual stock itself. For example, if some of your shares have appreciated, you could donate those, then buy new ones.
What about depreciated stock?
What if you want to donate, but your stock has dropped in value since you bought it? In that case, you probably want to sell your stock and give that money to charity. You won’t get hit with a capital gains tax because your stock hasn’t appreciated.
How to donate your stock to a charity
- Make sure your chosen charity accepts stock, and that you can deduct your donation. You can’t deduct donations made to a political organization or candidate, or to an individual.
- Contact the charity to find out if they have a brokerage account, and what info you need to donate your stock to them. Then contact your brokerage firm and tell them you want to make a transfer in kind to a charitable organization.
- Get a receipt and make sure it includes:
- The charity’s name
- Your name
- The stocks donated
- The donation date
- The amount of the stock
- A statement specifying that no goods or services were offering in exchange for the donated stock
- A statement about the value of the goods or services the charity provided you (if any)
- A statement specifying that the tax deduction may be limited
The smart way to give
This year, give back in a way that makes sense for you and the charity you’re giving to. If you need help figuring out how to donate your stocks, ask a member of our online tax community or connect with a CPA via TaxGlobal.