Donate Stock Shares

Donate Stock Shares

If you’re like most charitably inclined people, you’ll likely make a donation in the coming weeks.

Charity Navigator, an online evaluator of charities, found that charities receive 41 percent of their annual contributions between Thanksgiving and New Year’s Day. Some charities, such as Teach for America, receive upward of 80 percent of their donations in December alone.

Whether it’s the spirit of the season, a desire to limit next year’s tax bill or a combination of both, these last few weeks of the year will see a flurry of charitable donations. Planning ahead can help you maximize not only your gift, but also the tax deduction you’ll receive.

Donating Appreciated Assets/Stocks

Appreciated assets, especially stocks, are frequently donated at the end of the year. Instead of selling the stock and contributing the proceeds from the sale to charity, consider donating the shares directly to the organization.

For example, let’s say Scott is in the 25 percent federal tax bracket and has $5,000 in appreciated stock he wants to donate. If he sells the stock and donates the proceeds from the sale, he will only end up donating $4,250. The other $750 is used to pay long-term capital-gains taxes at the 15 percent rate. Plus, even though Scott sold $5,000 worth of stock, he can only deduct $4,250.

Instead, if Scott donates the shares directly to the charity, there are no capital-gains taxes, and he can deduct the full $5,000. Even better, the charity will not have to pay any capital-gains taxes when it sells the donated stock.

Donating Depreciated Assets/Stocks

If you hold depreciated stock, the above strategy is less effective because there are no capital gains to be taxed. Instead, consider selling the depreciated stock first, then donate the proceeds from the sale to charity. That way, you’ll be able to deduct the capital loss from the sale of the stock in addition to being able to deduct the donation. You can deduct up to $3,000 in capital losses every year; excess losses can be carried over to future years.

Excerpt from “Sandager: Consider donating shares directly to charities” published Nov 1, 2014 in Des Moines Register

JIM SANDAGER, MBA, CFP, is senior vice president, financial adviser for Wealth Enhancement Group and co-host of “Your Money” on News Radio 1040 WHO on Sunday mornings. Securities offered through LPL Financial, member FINRA/SIPC.

This is not financial advice. To determine how donating stock can help you 
reduce your tax liability, please seek professional advise.