Advertisement
Tax Breaks

5 Things You Should Know About Giving Stock to Charity

Donating stock instead of cash may help you get a bigger tax break.

Is it better to give stock or cash to a charity? Do I need to do anything special to give stock?

The best strategy depends on whether the stock has increased or decreased in value since you bought it and whether you've owned it for more than a year. Here are five things to know about giving stock to charity to get the maximum tax break.

Advertisement - Article continues below

1. Giving appreciated stock you’ve held for more than a year is better than giving cash. If you donate stock that has increased in value since you bought it more than a year ago – and if you itemize deductions -- you can take a charitable deduction for the stock’s fair market value on the day you give it away. You’ll also avoid capital-gains taxes on the increase in value over time, which you would have had to pay if you sold the stock then gave the charity the cash proceeds. You can deduct the fair market value only if you hold the stock for more than a year before giving it away. If you’ve held it for less than a year, your deduction is limited to your cost basis -- what you paid for the stock -- not the current value.

Advertisement
Advertisement - Article continues below

2. If it’s a losing stock, it’s better to sell it and give the cash. If the stock has lost value, it’s better to sell the stock first and give the cash to the charity. You’ll still be able to deduct your charitable donation if you itemize, but you’ll also be able to take a capital loss when you sell the investment.

Advertisement - Article continues below

3. Ask the charity and brokerage firm about the procedure and time frame for giving stock. Most banks and brokerage firms require a letter of instruction or letter of authorization to transfer the shares to charity, and a mutual fund company may have a special form. It’s a good idea to start the process at least a week before December 31, so the transfer has plenty of time to be completed during the holidays. Jane Wilton, general counsel for the New York Community Trust, recommends transferring mutual fund shares a few weeks earlier. “Some mutual fund companies are faster than others,” she says.

4. You can buy extra time with a donor-advised fund. If you’d like to transfer shares when the value reaches a certain level but want extra time to decide which charity to support, you could give the stock to a donor-advised fund. You usually need $5,000 to $10,000 to open a donor-advised fund at a brokerage firm, mutual fund company or community foundation. You can take a charitable deduction when you give the shares to the donor-advised fund, but you have unlimited time to decide which charities to support. The donor-advised fund may also accept privately held stock, real estate and other complex investments. See Donor-Advised Funds: Tax Break Now, Charity Later for more information.

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

5. The timing may be tricky if you donate your required minimum distribution from a retirement account. If you’d like to transfer your RMD to charity, delay taking your RMD until Congress passes the law allowing it for 2015. For the past few years, people over age 70½ have been able to transfer up to $100,000 from their IRAs to charity tax-free. The gift counts as their required minimum distribution for the year, but it is not included in their adjusted gross income. This can be a great way to avoid having to pay taxes on your RMD if you want to support a charity, and it gives you a tax break even if you don’t itemize your deductions.

But Congress usually waits until the end of the year to extend the law. To count for the tax break, you generally need to transfer the money directly from the IRA to the charity, and you can’t touch it first. So it’s a good idea to wait until Congress approves the law for 2015 before taking your RMD. But if Congress still hasn’t acted by mid December, ask your IRA administrator how long you can wait and still meet your RMD deadline. If you don’t take the money by December 31, you may have to pay a penalty of 50% of the amount you should have taken but didn’t. See Tax-Free Transfers From IRAs to Charity Are Still on Hold for more information.

Advertisement
Advertisement

Most Popular

Medicare Basics: 11 Things You Need to Know
Medicare

Medicare Basics: 11 Things You Need to Know

There's Medicare Part A, Part B, Part D, medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare --…
September 16, 2020
5 Unfortunate Estate Planning Myths You Probably Believe
estate planning

5 Unfortunate Estate Planning Myths You Probably Believe

These all-too-common misconceptions can steer your estate plans in the wrong direction right from the start. Here’s how to overcome them and tips to b…
September 17, 2020
Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
September 18, 2020

Recommended

Stock Market Today 9/18/20: Wild Friday Features More Woes for Tech
Markets

Stock Market Today 9/18/20: Wild Friday Features More Woes for Tech

Big Tech stocks Apple (AAPL), Amazon.com (AMZN) and Microsoft (MSFT) all declined on a wobbly 'quadruple witching' Friday.
September 18, 2020
Kiplinger's Weekly Earnings Calendar
stocks

Kiplinger's Weekly Earnings Calendar

Check out our earnings calendar for the upcoming week, as well as our previews of the more noteworthy reports.
September 18, 2020
Stock Market Today 9/17/20: Stocks Can't Shake Fed Hangover
Markets

Stock Market Today 9/17/20: Stocks Can't Shake Fed Hangover

Evidence of a slowing economic recuperation reinforced some of the Fed's worries, leading to a broad drawdown in Thursday's trading.
September 17, 2020
Stock Market Today 9/16/20: Fed Frazzles Stocks, But Buffett Scores Big
Markets

Stock Market Today 9/16/20: Fed Frazzles Stocks, But Buffett Scores Big

The Federal Reserve spooked stocks Wednesday by painting a gloomy picture of the economy, but the sun shined on a norm-breaking Buffett investment.
September 16, 2020