Stock Donations: Four Reasons To Try

This article is adapted and re-printed from Fidelity Charitable (DAF)

Liquidating stock to make a donation is easy, and offers the investor potentially several tax benefits over cash donations.

You Can Give More

By donating stock that has appreciated for more than a year, you are actually giving 20 percent more than if you sold the stock and then made a cash donation. The reason is simple: avoiding capital gains taxes. The maximum federal capital gains tax rate is 20 percent on long-term holdings. Given that the Dow Jones Industrial Average rose from about 18,000 at the end of March 2015 to about 22,000 at the end of March 2020, you are likely to realize a taxable profit on the sale of assets you purchased in the past five years. But if you donate the stock directly to a charity, there is no capital gains tax to pay. Plus, you are still eligible to deduct the full fair-market value of the asset you donated from your income taxes,  up to the overall amount allowed by the IRS. And remember that your appreciated assets can also include assets that are not publicly traded,  like restricted stock or bitcoin.

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You Can Potentially Reduce Future Capital Gains

Many investors have stocks that they love and want to hold for the long term. Any appreciation of that stock's value confirms your belief in it, but it can also set the stage for substantial gains when you sell. So consider donating some of your appreciated shares and then buying new shares to reset your cost basis at the current, higher price. This will reduce your future capital gains tax exposure if the stock continues to grow in value.

You Can Give Your Portfolio a Health Check

Even with a good diet and regular exercise, your health can get out of balance. So, too, can your stock portfolio. If a review of your investments' gains and losses shows that it's time to rebalance your portfolio to maximize its performance and optimize for risk, donating stock can give your portfolio the health check it needs. Implementing a donation strategy puts your capital gains to work funding your philanthropy. Talk to your advisor about which assets to put to a better use.

"This is also a great opportunity to take a look at concentrated positions in your portfolio and contribute part of them to a donor-advised fund," says Margot Navins, a vice president and charitable planning consultant with Fidelity Charitable. "Concentrated positions often come with a personal significance - perhaps you worked at the company for 35 years. This allows the investor to transfer the emotional attachment to charity while also minimizing the capital gains tax."

You Can Donate Stocks Without A Headache

Some people may not be interested in donating stock because they think it will require a lot of paperwork and phone calls, or that their chosen charity may not be able to easily accept a stock donation. But a donor-advised fund, like the Giving Account at Fidelity Charitable, a public charity, takes the hassle out of donating stock.

A donor-advised fund is like a charitable investment account which can be used exclusively to support charities you care about. Instead of donating multiple blocks of stock to multiple charities, you make one donation which is used to fund your Giving Account. There is one form to file with your tax return instead of many.

And if you're not sure which charity should receive your appreciated stock, you need not decide now. Donating stock to a donor-advised fund allows you to take a deduction for the current tax year and then support as many charities as you would like over time, by recommending grants on the timetable that makes the most sense for you.

To be eligible for a charitable deduction for a tax year, donations of stock need to be received by the end of the year. Because different assets take different amounts of time to be transferred, you should initiate your transactions as early as possible.

"The point is to be efficient, effective and give more to your favorite cause," says Navins.

How Do I Make A Stock Donation?

Advise from our stock advisor:

A 'Donor Advised Fund' (or DAF) - https://www.charityvest.org/
The donor can establish a free account, transfer the stock and then donate it to Clan Strachan.

Another way to effect a stock transfer, and perhaps a bit easier is something like this - www.stockdonator.com. It's built to accept stock donations and provide a lot of the administrative support for the charity.

 

We always advise people making a donation to a charity to beware, as there are a lot of scams.  Be sure the charity is legitimate, by checking the U.S. Internal Revenue Service website (https://apps.irs.gov/app/eos/) to make sure the organization is an authorized IRS 501c3 public charity (Clan Strachan Society). The IRS website also provides information on 990 and 990-N tax returns, etc. Charity Navigator may also be a useful tool when making donations to larger charities. Always double-check addresses, websites, etc. If you have any concerns, please contact the charity, ask for a copy of their IRS Letter of Determination, check the status on the IRS website, confirm addresses, and ask as many questions as you like until you are satisfied.  Legitimate charities are happy to provide this information to donors.