Donating stocks to charity can be a rewarding experience—not only is it a great way to express your philanthropy, but it can also provide significant tax benefits. Stocks are a type of financial asset that can be donated to non-profit organizations, most commonly held via publicly traded companies on the stock market. Based on your financial objectives, certain criteria should be considered when you donate stocks to charity such as which types of stocks may be donated, what types of organizations you’re able to donate to, and how to go about executing a stock donation. Read on to learn more about how to donate stock to charity.
Types of Stock Gifts
Before you decide on which charity and stocks you want to donate, it’s important to understand the types of stock gifts. Stocks can be donated in two ways:
- Donating appreciated stocks – These are stocks that have gone up significantly in value since you bought them. For example, if you bought a stock at $20 and it is now worth $100, you can donate the $100 market value and get a deduction of the higher fair market value.
- Donating non-appreciated stocks – This is the opposite of the above; stocks that have not increased in value do not provide a tax benefit. Donors will get a charitable tax deduction actually equal to the lesser amount they paid for them.
Organizations to Donate to
When deciding on which charity to donate to, here are some of the organizations worth considering:
- Non-profits – Non-profits are dedicated to serving the public good, such as helping the homeless, feeding the hungry, providing healthcare or promoting education, scientific research, environmental or humanitarian causes.
- Religious centers – Religious centers serve the spiritual needs of their community and the world at large.
- Educational institutions – Educational institutions focus on teaching, research and scholarship.
- International relief organizations – International relief organizations provide aid to those affected by natural disasters.
How to Donate Stocks to Charity
Once you’ve selected an organization to donate to, it’s time to take the necessary steps to finalize the donation.
Step 1: Contact Broker
The first step is to contact the broker where your stocks are held to inform them that you’d like to donate stocks to a charity. Be prepared to provide them with the details of the charity and the exact amount of stocks you plan to donate. Your broker will then help you complete the necessary paperwork to initiate the donation.
Step 2: Provide the Charity with Data
Once the paperwork is complete and the stocks are transferred to the charity, you should provide the charity with the details of the stock and the number of shares you donated. Additionally, you should also provide the charity with the date of transfer and your contact information. Most charities will be able to provide you with a letter of acknowledgement for tax purposes.
Step 3: Report Donations on Tax Return
When filing taxes, it’s important to report all proceeds from the sale and any related capital gain tax on the donated stock. Donors can take a deduction for the full fair market value of the donated stocks if held for more than one year. The deduction will be limited to 20 percent of your adjusted gross income, but any amount that exceeds 20 percent can be carried forward for up to five years.
Benefits of Donating Stock
Donating stock can be a great way to support a charity, and it comes with several key benefits.
- Tax Benefits – As mentioned above, donating appreciated stocks can provide a tax benefit when filing taxes. Additionally, stock donations are typically a much more cost-effective way of donating than cash.
- Increased Impact – Donating stocks can have a greater impact than cash donations; as the money is usually invested by the charity and proceeds are used to support its cause.
- Long-term Support – Donations of stock can provide long-term, sustained support to charities that can help increase their financial stability and provide more funding for programs.
Tax benefits, increased impact, and long-term support are just some of the benefits of donating stocks to charity. Donating appreciated stocks can provide additional tax benefits if held for more than one year. Before deciding on which charity to donate to, it’s important to understand the different types of stock gifts and to contact your broker for the necessary paperwork. Once the paperwork is complete, you should provide the charity with the data and report your donations on your tax return. Donating stock is a great way to make an impact and support a worthy cause.
