Donating Stock to Charity: A Tax-Smart Strategy

There are advantages to donating stock to charity instead of giving cash. This assumes that you have stock that has appreciated in value and that you are planning to make a gift in the first place. Cash can be the last and least effective asset that you can give. It’s better for you to write a check to your investment account and give away appreciated stock than to write a check to charity, and keep appreciated stock given the choice.

Donating Stock Instead of Cash

Let’s use an example to clarify this tactic. Let’s assume you want to make a gift to the Episcopal Community Foundation of $10,000, and you have $10,000 of cash available to do so. You also have stock worth $10,000. You paid $5,000 for that stock. If you give either the cash or the stock, you will receive a tax deduction, assuming you itemize deductions on your tax return, of the $10,000 gift.

However, you could instead consider donating the stock directly to ECF. In doing so, you would eliminate paying the tax on the gain of $5,000. You would still receive the charitable tax deduction, assuming you benefit from itemizing tax deductions on your return, and the Foundation would benefit from the entire $10,000.

Replenishing Investments

An additional strategy would be to send the $10,000 cash you have to your investment account to replenish it for the $10,000 in value that you gave away. This would allow you to diversify if the stock you gave away was from a concentrated holding, or you could buy the same stock back. If you bought the same stock back, it would most likely be at the now higher price than you originally paid for the remaining stock position. This would then increase your overall cost basis which would lower your future tax, if you were to sell the stock position.

A Tax-Smart Strategy

By giving stock instead of cash, you have:

• received a tax deduction, assuming you itemize;
• avoided paying the capital gains tax; and
• an opportunity to rebalance your portfolio.

You also may be able to increase the tax cost basis in the same stock, and ECF benefits by the full amount of the stock received.  As always, professional advice should be sought in these matters to be sure that the benefits depicted can be enjoyed or if there are even better options in your case. You are encouraged to contact us to discuss such matters prior to taking action to determine the best course of action specific to your situation.