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Maximize Your Charitable Donation
I want to give some money away to my college and a few local charities before the end of the year. Is it better to give cash or stock?
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
November 21, 2003
I want to give some money away to my college and a few local charities before the end of the year. Is it better to give cash or stock?
It depends on whether you made or lost money on your investment.
If you've owned the stock for more than a year and it has appreciated in value, it's better to give the charity the shares rather than cash. That way you'll avoid capital gains taxes on the earnings, be able to deduct the current value of the stock as a charitable contribution (if you itemize) and the charity gets the investment's full value.
Say, for example, you bought 100 shares of Incredible Company 10 years ago for $5,000 and the value rose to $8,000. If you sell the stock, you'd have to pay long-term capital-gains taxes on your $3,000 earnings -- that's a $450 tax bill if your capital-gains rate is 15%.
If you give the stock to the charity instead, you'd avoid that $450 capital-gains tax bill, but still be able to deduct the $8,000 as a charitable contribution. That would reduce your tax bill by $2,000 if you're in the 25% bracket.
This move also helps if you've reinvested dividends through the years. Instead of having to dig up old statements to figure out the cost basis for your taxes, you'd unload the stock without a tax bill at all. Charities tend to be very happy to get your assets, so they'll usually make it easy to transfer ownership of the shares.
On the other hand, if the stock lost money it's better to sell the shares and give the charity the cash -- you'd get deductions for both your capital loss and for the charitable contribution.
For example, if you bought 100 shares of Not-So-Incredible Company for $8,000 and the value shrunk to $5,000, you'd be able to write off the $3,000 loss. That loss can shave up to $450 from your tax bill if you're using it to offset long-term capital gains, or could lower your taxes by $750 (if you're in the 25% bracket) if you don't have long-term capital gains and you use the loss to offset ordinary income. In addition, you'd be able to deduct the $5,000 current value as a charitable contribution, which could lower your tax bill by $1,250 if you're in the 25% bracket.