How to donate stock to charity

As a result of rising interest rates over the past year, 21 percent of people have increased their contributions to stock-related investments and 27 percent expect to contribute more, according to a May 2023 Bankrate survey.

Many people make charitable donations to support causes they believe in, but few realize that it is possible to donate stock instead of cash. Donating shares can provide you with tax benefits, while your charity can also receive more.

Despite these benefits, not everyone knows how donating shares to charity works or whether it is even an option. Here are some of the benefits of donating stock and how it works.

Statistics of donations to charities

How charitable stock donations work

People often think about donating money to charity, but nonprofits can also accept donations in other forms. Cash, stocks, cars – they all have value – and charities are usually happy to accept them.

With stocks, the process can be as simple as transferring shares from one investment account to another, and you can go this route every year if you wish.

However, you can also donate stock in another way, especially if you want to donate it over time. With a donor-advised fund, you can contribute a lot of shares at once and then pay out the gift over time.

“You donate shares to a donor-advised fund, get an immediate tax deduction, bypass the capital gains, and then take the time to decide 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 situation for everyone.”

With a donor-advised fund, you can get a tax deduction for the full amount in the year you make the first donation, but you don’t have to pay out the full amount immediately. Instead, you let the fund know how and when you want to make charitable donations.

The donor-advised route may make sense if your primary goal is to maximize your tax deductions in a given year. But you must itemize your deductions to claim charitable gifts, so this strategy can help you push your contributions above the standard deduction amount.

Tax benefits of donating shares

When you donate shares to a charity, it is possible for both you and the charity to avoid any capital gains on the shares.

Normally, when you sell shares in an investment account, you are taxed on any increase in the value of those shares. If you held it for a year or more, you would have to pay the long-term capital gains tax rate of up to 20 percent. If you’ve held it for less than a year, the gains are taxed as ordinary income, which could mean a rate as high as 37 percent in 2023.

To get the maximum tax benefit, an appreciated security should be held for at least a year before being donated to a charitable organization. If you own one of the best performing stocks, you may want to consider selling some of those stocks.

If you donate shares that you have owned for less than a year, you can still avoid taxes on any gains, but the deduction will be limited to the current market value of the shares or what you originally paid for them, depending on whichever is lowest. .

In general, the tax benefits of donations are greater for the wealthy, because otherwise much of their income could fall below the 37 percent rate. But even people with more modest incomes can benefit from donations.

“If you have a year where you have to pay a higher tax rate, that’s a good time to think about donating some stock,” Lovison says. “Bundling multiple deductions in a year when your income has a small spike, even a modest one, can be a powerful tool.”

Donating shares is especially useful if a share has increased in value. You can claim a deduction for the value of the shares, legally avoiding tax, and the charity gets the full benefit of the shares. This way, the amount that would otherwise go to the IRS as taxes instead stays with the charity.

You can deduct a maximum of 30 percent of your adjusted gross income from donations each year. You can include any excess contributions in your tax return for a maximum of 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 generally does not have to pay taxes on the donated shares. That’s 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 in 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 stock donations. You may also need information such as the charity’s account number and mailing address, so ask for this in advance.

If a nonprofit accepts shares, let your broker know that you would like to donate your shares to charity. Once you give them the charity’s information, the broker can initiate the share transfer.

When you donate stock to charity, you must complete IRS Form 8283 when you file your income tax return.

To maximize the benefits of donating stock to charity, it is wise to consult a financial advisor or tax professional to ensure IRS requirements are met.

When you shouldn’t donate shares to charity

While donating to charity is commendable, donating stocks doesn’t always make sense, especially if the price of a stock you want to donate has fallen in value since you bought it.

Instead, you can sell the stock and write off your tax loss, a process called “tax-loss harvesting.” Then, if you wish, you can donate the proceeds from that transaction.

Given the added hassle of transferring shares, it may not make sense to donate shares if you only want to donate a small amount. As previously mentioned, you can only claim a tax deduction for stock gifts if you itemize the deductions on your tax return. If you make a one-off donation, it may not exceed the standard deductible amount. So donating shares works best if it involves a significant one-off contribution or a series of substantial contributions.

Also remember that the charity must be able to accept stock donations. If that doesn’t work, it’s better to donate cash. In reality, most charities will simply convert the shares into cash anyway to help fund their activities. So it is also best to donate shares that have a certain degree of liquidity.

If you’re unsure, call the charity you want to donate to and ask if donating stock is the best way to meet their needs.

How to donate to charity without having any money

Donating stock is just one way to support your favorite organization. If you’re on a budget, there are other ways to make an impact.

Here are four ways to give back without donating money:

1. Donate time: Most nonprofits are in dire need of volunteers. Instead of writing a check, consider contacting a local charity to find out how you can donate your time.
2. Donate items: Many charities accept donations of goods and property, such as cars, real estate and even household items. You may qualify for a tax deduction if you itemize your taxes. It’s also worth calling a non-profit organization and seeing if they need any specific items for day-to-day operations. For example, animal shelters can use dog food, cleaning supplies and old blankets.
3. Donate a skill: Matching your skills with a nonprofit in need is another great option. If you enjoy cooking, consider preparing meals at a homeless shelter. Or if you’re a marketing expert, you can help your charity improve their social media marketing campaigns. Identify what makes you unique and then find a purpose that someone with your expertise can be used for.
4. Take advantage of smart shopping: If you’re already buying Christmas gifts for your family, consider shopping at stores that donate a portion of sales proceeds to charity, or see if you can donate your credit card points to your favorite charity. You can also check if your bank gives back to charities. Spring Bank, for example, spends 74 percent of its deposits on community financing, ensuring that the bank’s funds are returned to the communities it serves.

In short

Donating shares to a good cause has benefits for both the donor and the recipient. The donor can claim the entire donation as a tax deduction, while the charity may not have to pay tax if it is tax exempt. Many charities accept stock donations, but check with the organization you are considering first.