When giving a gift, how your investment has fared will make a big difference on your taxes. By Kimberly Lankford, Contributing Editor June 4, 2007 Which is better -- donate stock to a charity or donate the proceeds from selling the stock?It depends on whether you've gained or lost money on the investment. If the stock has increased in value since you bought it, then you'll be better off donating it to charity instead of selling it. That way, you'll avoid the capital-gains taxes on the profit. Say you bought 100 shares of a stock at $10 and it's now worth $40 per share. If you give the stock to charity, you won't have to pay the capital-gains taxes on the $3,000 in profit. If you held the stock for more than a year and are in the 15% long-term capital gains tax bracket, that move will save you $450 in taxes, which you'd owe if you sold the stock first. And if you've owned the stock for more than a year, you'll still be able to deduct its current market value -- $4,000 -- as a charitable contribution on your taxes if you itemize, like you would whether you gave stock or cash. (If you held the stock for one year or less, then you'd only be able to deduct the original $1,000 purchase price.) If the stock has decreased in value, though, it's better to cash it in first so you can deduct the loss. If that 100 shares of stock you bought at $10 is now worth $4, for example, you'll be able to write off the $600 loss if you sell the stock before giving the money away. If you held the stock for more than a year and are in the 15% long-term capital-gains bracket, for example, that move can save you $90. And you'll still be able to deduct the value of the gift as a charitable contribution -- $400 in this case. Advertisement Before you give away stock, first make sure the charity is set up to deal with the gift. Some small charities don't have brokerage accounts and may have a tough time selling the stock or mutual funds. Another option: Set up a donor-advised fund. You can then give the stock to the donor-advised fund, which sells the investment and gives the cash to the charity. You'll get a tax deduction for the charitable gift when you transfer the stock to the donor-advised fund, but will have unlimited time to decide which charity to support -- making it a good move if you'd like to make a donation before year-end for tax purposes but would like some extra time to select the charity. For more information about donor-advised funds, see Philanthropy Made Easy. Got a question? Ask Kim at firstname.lastname@example.org.