Can I donate stock to charity?
Absolutely, and you get a deduction for the FMV at the date of contribution. You will also avoid Capital Gains tax if you donate the appreciated stock, directly assuming it has depreciated. This is a better strategy than selling the stock and contributing the cash. This is assuming a gain. If you had a loss, then you want to sell the stock, take the Capital Loss, offset your Capital Gains, and contribute the cash. Hope this helps and Happy Holidays. Dan Stewart CFA®
P.S. I forgot to add, this also assumes you Itemize and may be phased (limited) if your income is real high. But under most situations, the answer is yes, and the above strategy applies.
One of the best ways to give to charity is through highly appreciated stock. Here is how this works:
Contact the charity where you would like your donation to go. Most will have a brokerage account set up with one of the larger brokerage firms. They will give you wiring instructions to have the stock transferred. You will want to make sure that your brokerage firm knows that you DO NOT want to sell the stock, but are wanting to "transfer in kind" to the charity. That way, the charity can sell the stock and use the funds for the charitable purpose without having to pay any taxes on the gain.
Now, if you have a stock that has a built in loss, do not give this "in kind." Instead, you will want to sell the stock at a loss in order to take the loss on your personal tax return AND use the proceeds to give to the charity which will go on your Schedule A as an Itemized Deduction.
Giving stock is one of the best ways to support great causes and use the tax code to your advantage!
Giving stock, instead of cash, as a donation can greatly benefit both parties. You will find that most charities, hospitals, schools and other nonprofit organizations will accept stock as a gift or donation.
If the stock has increased in value from the time of purchase, the owner can avoid paying the capital gains tax by donating the security to another party. When the security is being donated to a charitable organization, the total amount will still be eligible for a tax deduction. Since taxation is avoided on the stock donation, the giver will be able to make a larger donation.
For example, let's say you were looking to make a $1,000 donation to a charity. You could either give cash or donate stock. Let's assume that the you bought stock for a original purchase price of $700, but it is now worth $1,128.55. To make it simple, let's assume capital gains tax is 30% of the stock's appreciation. Selling the shares for cash would net about $1,000 after capital gains tax (1,128.55 - (1,128.55 - 700)*0.30). In this case, you should be indifferent between donating the entire stock or giving cash, as both choices will cost you $1,000. However, the charity can receive more benefit from a stock donation, as they will receive a gift valued at $1,128.55, instead of the $1,000 in cash.
For additional information on how to give stock as a gift, read Can I give stock as a gift?
Many 501(c)3 charities will accept appreciated stock as a donation. If the stock happens to be trading less than your cost, it would be better to sell the stock first and take the tax loss. You can then donate the cash.
If the stock happens to be held in an individual retirement account, you can also sell it first, donate the cash and it will not have to be reported as taxable income on your tax return.
The short answer is yes. It is very common to gift, usually appreciated stock without selling it, so you do not have to pay capital gains tax, get the charitable gift deduction on your tax return, and accomplish a tremendous personal accomplishment that helps a cause important to you.
I suggest you discuss the gift with your tax advisor, since there a few issues to be aware of such as the charity should be a qualified charity, how much will be eligible for deduction, and the impact on your taxes. On a personal note, also understand how the gift fits into your overall estate plan, how and when you wish the gift to be given (during your life, after you pass or spouse passes or over some specific time), do you make the gift during your life and wish to take the income (dividends) while alive from the stock, or one of many other scenarios available to you. There are many different ways to give under many different scenarios based on what you want to accomplish. I suggest you carefully consider what you want to achieve and under what circumstances the charity can use the funds (for a specific cause, and not administrative overhead, etc.), then discuss your thinking with your tax advisor and an estate planning attorney to help put your wishes into writing and ensure you understand all your alternatives of what you can do and the advantages to you. Gifting is very personal and you can accomplish or move forward some very great causes with your donation, no matter its size.