Should I give stock or cash to a charity? What steps do I need to take if I want to give shares of stock?
Whether it makes more sense to give shares of stock or sell the stock and donate the cash depends on whether the stock has increased or decreased in value since you bought it. If its value has increased over time, it’s better to donate the stock. If you’ve owned the stock for more than a year, you get to take the current value as a charitable deduction if you itemize and you don’t have to pay tax on the appreciation (you’d owe capital-gains tax on the profit if you sold the stock first and then wrote a check). If the investment has lost value, however, it’s better to sell the stock and give the proceeds to the charity. Your deduction is still based on the current value of the stock, but you get to use the loss to offset other gains. If there’s an excess loss, you can deduct $3,000 against other kinds of income.
If you want to give stock to a charity, you’ll need to act fast. Contact your brokerage firm to find out what steps you need to take; usually, you’ll need to fill out a transfer form. Be sure to notify the charity that the money is on its way. “You need to let the organization know the name of the stock, the number of shares that are being transferred and the date you’re expecting them to arrive,” says Alyssa Herman, chief development officer for the Food Bank for New York City, which has seen an increase in gifts of appreciated stock. “If the shares go straight from the broker by electronic transfer, the donor’s information doesn’t come through, and we can have a mystery on our hands trying to figure out where they came from.” You also want to let the charity know who the stock is from you so you can get a receipt for the gift to keep in your tax files.
Your gift will be counted on the date the stock is transferred, and that must be by December 31 if you want a 2014 charitable deduction. Ask your broker if it’s possible to meet that deadline. See Charities: Give Stocks Instead for more information.
If you want to donate the stock in 2014 but need more time to decide which charities to support, you could open a donor-advised fund through a brokerage firm, mutual fund company or community foundation. You qualify for a tax deduction on the date you give the money to the fund, but you have a nearly unlimited amount of time to decide how to divvy it up. Meanwhile, the money continues to grow in an investment pool or mutual fund. Schwab and Fidelity require you to have $5,000 to set up a donor-advised fund; T. Rowe Price requires $10,000. But some community foundations let you set up a donor-advised fund with less (see How to Set Up a Donor-Advised Fund for more information).
You may want to think about charitable giving throughout the year rather than waiting until December the next time around. See Smarter Ways to Give to Charity for more information about setting up a charitable-giving plan throughout the year. Also see How to Make the Most of Your Charitable Giving.
As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.