5 Surprising Benefits of Donating Stock to Charity

Donating appreciated stock to charity may not be the first option you think of for your philanthropic gifts, but doing this can result in several tangible, real-world benefits—both for you and the cause you support. With this in mind, here are five of the best and most surprising benefits of donating stock to your charity.

Deduct the fair market value of the stock

When you donate stock to charity that you’ve held for one year or more, the IRS allows you to deduct the fair market value of the charitable stock donation. In most cases, taxpayers can deduct up to 30% of adjusted gross income by donating appreciated stock and other non-cash assets, assuming a holding period of at least one year.

Avoid Capital Gains Tax

When you donate stock to charity that has been held for more than one year, the IRS also allows you to avoid the capital gains tax on the stock gift. This, combined with the deduction described above underscore the unmatched benefits of donating appreciated stock to charity.

Rebalance to Reduce Future Capital Gains

If you have big gains in a particular stock but are not ready to part with it, you can take advantage of a tactic called rebalancing in which you donate shares with the lowest cost basis and repurchase the same number of shares at current market prices. This enables you to avoid capital gains tax on the stock you donate to charity while increasing or stepping-up the cost basis of the shares you now own. This will reduce capital gains tax when you sell the stock in the future.

For example if you own 100 shares of Apple that you purchased in 2011 at $15, you can donate those shares (now worth $150 per share or $15,000) and avoid the tax on the $13,500 capital gain. You can then repurchase 100 shares of Apple for $150 each, thereby increasing your cost basis and reducing your future tax liability.

You can give more if you donate stock (rather than sell it)

When some think about donating stock to charity, they may think first about selling the stock and donating the proceeds from the sale to charity. Even though the intent is to transfer the value of the stock directly to charity, the donor is still liable for the capital gains tax when the stock is sold vs. gifted.

By donating stock to charity as a pre-tax gift, you are letting the charity keep the proceeds that would have otherwise been paid to the IRS—had you had sold the stock. The charity receives a larger gift while you maximize tax savings. This is another advantage of donating stock to charity that makes it a win-win for all parties.

You Get a Personal Reward

Beyond the financial advantages of donating stock to charity, supporting causes you care about is fulfilling and enriching. And a charitable stock donation can do just as much good—if not more—than a cash gift.