Donating Stock to Charity: How Does It Work?

What Happens When I Donate Stock to a Charity?

Donating stock involves transferring ownership of shares from your portfolio to a qualified charitable organization (a 501c3). Many charities welcome stock donations, and therefore have systems in place to manage these kinds of transfers smoothly.

Once the charity receives the shares, it can choose to sell them or keep them in its own investment portfolio and allow them to appreciate in value.

It’s important to note that, for the sake of brevity, we will refer to “stocks” throughout this blog, but you can donate any type of publicly traded security, including mutual funds and exchange trade funds (ETFs).

 

The Benefits of Donating Stock to Charity

Donating stock instead of cash can often be a smarter way to support your favorite causes for a number of reasons. Here’s what to consider:

You Can Get “Double-Dip” Tax Benefits

One of the most significant advantages of donating stock is the potential to earn two tax benefits for the price of one donation. When you donate appreciated stock, you can avoid paying capital gains tax on the increase in value. Additionally, you may be able to claim a charitable deduction for the full fair market value of the stock at the time of the donation. (See our section on Tax Regulations for more on deductions.)

Note that we are only talking about stocks that have appreciated in value. If you have a stock that has lost value, your best bet is probably either to hold on to it and see if it can make the climb or sell it and realize the capital loss.

Your Donation Can Go Further

If the charity you donate stock to chooses to sell it, that means immediate cash flow—so it’s no different than giving cash in that regard. But if the charity chooses to keep it and let it appreciate, then your gift can grow in value over time. What’s more, as a 501c3, the charity is exempt from paying capital gains tax on the sale of stock, so any appreciation in value is 100% the charity’s to keep.

Rebalancing Your Portfolio Won’t Cost You  

You know how important it is to rebalance your portfolio at key intervals. But it’s also important to think through the capital gains impact any trades you make could have on your tax bill. As a savvy investor, keep in mind that you always have the option to donate some or all of the stocks that you want to divest to charity. This can eliminate or reduce the capital gains taxes that your rebalance will trigger.

 

Are There Any Downsides to Donating Stock?

Admittedly, donating stock is a tad more complex than writing a check. It involves transferring shares from your brokerage account to the charity’s account, which might require a bit of paperwork and coordination. For charities that don’t have investment accounts (which is becoming increasingly rare these days), you might find yourself having to take an additional step or two to complete the transaction.

Reduce the Complexity with a Donor-Advised Fund

One way to avoid the complexity of donating multiple stocks to multiple charities while still reaping the tax benefits is to create a donor-advised fund.

With a donor-advised fund, you can donate all the stocks you wish to divest into one charitable giving account that you essentially control.

Through the fund, you can liquidate your stocks and distribute the cash across as many charities as you wish to support, or even invest your holdings so that they can continue to grow as you plan out future charitable distributions. To learn more, read our starter guide to donor-advised funds.

 

What are the Tax Rules Around Donating Stock to Charity?

In order to reap all the benefits of donating stock to charity, it helps to have a basic understanding of the latest IRS rules. As always, these rules are subject to change, so be sure to consult your tax advisor for up-to-the-minute guidance.

Qualified Charities

Ensure the organization you plan to donate to is a qualified charitable organization as recognized by the IRS. You can use the to verify an organization’s status.

Length of Ownership

To get the maximum charitable deduction on your stock donation to charity, you must have owned the stock for more than one year. This qualifies it as a “long-term asset” in the eyes of the IRS, thus allowing you to deduct the fair market value of the stock at its time of transfer. Of course, you can still donate any stocks that you’ve held for one year or less, but you will only be able to deduct your purchase price on the stock—not its current appreciated value.

AGI Limits

If you own the stock for more than a year, and can take a deduction based on the full fair market value of the stock, the deduction you can claim is capped at 30% of adjusted gross income (AGI). If your donation exceeds this limit, you can carry forward the unused deduction for up to five years.

The one wrinkle to the cash vs stock donation debate is that deductions on cash donations can be much higher, maxing out at 60% of your AGI. Typically, the savings you create by offsetting your capital gains tax will still cause stock donations to win out in the end, but be sure to ask your financial planner and tax advisor what the right strategy is for you.

Required Documentation

To claim a tax deduction for your stock donation, you’ll need proper documentation. This includes a receipt from the charity acknowledging your donation and a completed IRS Form 8283 for non-cash charitable contributions if the total value exceeds $500.

 

How to Get Started with Donating Stock

To make sure your stock donation strategy isn’t leaving any missed opportunities on the table, schedule an intro call with Advent Partners’ Certified Financial Planners®.

We specialize in helping charitable-minded savers like you support the people and causes you love the most, without sacrificing your financial peace of mind. Your generosity can make a tremendous difference—and it starts with a single share.