You may know that the IRS allows us to deduct charitable gifts from our income taxes (if we itemize). But have you thought about the potential benefits — both to you and to your favorite causes — of gifting appreciated stock?
Many people haven’t. While 75% of high-income taxpayers donate cash to charity, less than 10% donate securities, according to investment management firm BlackRock. That’s a shame, because donating appreciated securities you’ve held for a year or more can lead to a greater impact on the nonprofits you care about — as well as tax benefits for yourself.
So why don’t more people donate stocks? A survey by Fidelity Charitable found that most donors admit they aren’t completely familiar with how it works.
Right now, after two straight years of robust stock market gains, many investors are holding securities that have appreciated significantly compared to when they bought them. If that’s you, maybe you’d like to do something with that stock — without sending a big chunk of those gains to the IRS.
Carl Daikeler, CEO of fitness and nutrition company Bodi, recently found himself in that situation. He had some stock worth $40,000, which he had originally purchased for just $10,000. Faced with paying capital gains tax on $30,000, he made a different decision that led to a tax deduction rather than a bill. He sent the shares to GO Campaign, a Santa Monica nonprofit that funds grassroot projects benefiting vulnerable children and young adults.
“I donated stock which was able to provide self-defense training to nearly 20,000 girls in India,” Daikeler says. “I got the $40,000 tax deduction, but the capital gain on the original purchase was never triggered.”
Now is a great time to talk with a financial advisor about how this technique, known as “charitable gain harvesting,” could work for you.
Increased impact on nonprofits
The beautiful thing about donating stock instead of cash is that it can go beyond saving on taxes. Donating appreciated stock can also empower donors to make a larger impact than they could have otherwise afforded.
Think of it this way. If Daikeler had sold his $40,000 in stock in order to donate the proceeds, he would owe capital gains tax on the transaction, leaving him with less money to donate. By donating stock instead, not only was his income tax deduction larger, but GO Campaign received a more valuable gift. And since, according to The Charity CFO, nonprofits don’t have to pay capital gains taxes on donations, GO Campaign was able to use 100% of that $40,000 value.
What can those untaxed dollars achieve? Big things. GO Campaign used another gift of appreciated stock, this one worth $1 million, to purchase an abandoned Walgreens building on Chicago’s South Side, which retired police officer Jennifer Maddox is transforming into The Spark Center — a safe haven and vocational training center for children and families on Chicago’s South Side.
“By providing a secure and nurturing environment, this initiative is making a tangible difference in the lives of young people who face significant challenges,” said Scott Fifer, founder and CEO of GO Campaign. “Every dollar spent on this community center is an investment in reduced crime rates, a stronger local economy and empowered young people who will contribute positively to society.”
The power of donor-advised funds
Instead of simply making a one-time gift of stock, some investors create a donor-advised fund (DAF) in order to pave the way for a lifetime of giving. According to the National Philanthropic Trust, DAFs have a range of tax benefits.
First of all, donors can place appreciated stock (or other assets) in a DAF and claim a tax deduction for its value during that year. Then, if the stock’s value grows more while it’s in the DAF, those gains are tax-free. The donor can then send assets from the DAF to a nonprofit of choice at any time.
While donors can put any asset, including cash, into a DAF, appreciated stocks are a popular choice because of the tax benefits already discussed. One provider of DAFs, DAFgiving360, shared that 64% of its DAF account contributions in 2023 were non-cash assets, including stocks.
When looking to make charitable gifts, don’t ignore your stock portfolio — especially if you have securities that you have held for a long time.
As Fidelity Charitable puts it: “The most appreciated stock in your portfolio is often the best to donate because it offers the greatest potential tax benefit.”
How to Help: Feeling inspired to donate? Check out our 2024 Better Guide to Giving for a roundup of top nonprofits to support now.
Carrie Kirby spends a lot of time asking people about something they think about but rarely talk about: money. Her work on personal finance, business and technology has appeared in San Francisco Magazine, The San Francisco Chronicle, Wise Bread and more publications. She lives on an island (Alameda) with her husband and three kids, and blogs about family travel and mileage rewards at The Miles Mom.
