The Best Kept Secret in Personal Finance

With the market hovering near all-time highs, millions of investors are wondering what to do about their unrealized gains. If you've been active in the market for more than 5 years, you may be thinking about:

• Harvesting gains: As many have learned the hard way, hot stocks can cool quickly. And as they say, no one went broke by realizing gains
• Reducing portfolio concentration: Diversified portfolios can become concentrated via outperforming stocks over time
• Minimizing taxes: Selling appreciated stocks may result in substantial capital gains tax, ranging from 18.8% to 37.1%, depending on the state and income

Hello Stock Gifting!

The good news is you can achieve all 3 objectives above by donating appreciated shares held more than one year. Charitable stock gifting not only enables you to avoid taxes (legally), but your gift can also have a much greater impact.

Let’s say you bought 100 shares of Nvidia in 2020 at $10 per share, or $1,000. At today’s price (almost $200), those shares are worth nearly $20,000, resulting in an unrealized gain of $19,000. If you live in California, New York, or New Jersey, selling the shares will trigger capital gains taxes ranging from 34% to 37%. In the example below, a California resident making more than $400k would owe $7,000 in taxes on the $19,000 gain.

However, if you donate (vs. sell) the shares to a 501c3 nonprofit, you can avoid the capital gains tax and itemize the full $20,000 gift. In this case, donating 100 shares of NVDA worth $20,000 would avoid $7,000 in capital gains tax and save another $9,000 in income tax by itemizing the deduction (assume 40% tax bracket). This adds up to $16,000 in savings on shares that cost only $1,000. The nonprofit also benefits as they will receive the proceeds that would have been withheld as tax has you sold the stock.

Use our tax savings calculator to see how much you can save by donating appreciated stocks, ETFs, and mutual funds.

Stock Gifting Made Easy

While stock gifting used to be a tedious, time-consuming process, it’s now fast, safe, and free to donate stock to more than 1.5 million nonprofits at DonateStock. It takes only 5 minutes to make your first gift. Each subsequent gift takes only 2 minutes.

We also save financial advisors countless hours when initiating gifts for their clients. At DonateStock, they can obtain transfer instructions in 2 minutes (also at no cost).

Key Takeaways:

1. Do not donate cash if you have long-term gains. If you want to keep the stock, simply donate the shares and repurchase them to increase your cost basis (not subject to the wash rule).
2. Do not sell stock and donate the after-tax proceeds. By donating the shares, the nonprofit keeps the proceeds that would have been paid to the IRS, and you get a larger deduction.
3. You can donate appreciated securities online in minutes to any of the 1.5 million charities, schools, and foundations at https://donatestock.com/donate. It’s fast, safe, and free for donors and financial advisors.

Armed with this knowledge, I hope you will put your gains to good use. With the busy season approaching quickly, it’s time to think about how you can rebalance your portfolio while avoiding taxes by helping those in need. Let’s put stock in something that matters!

Disclaimer: The author is not a financial advisor, and this article does not constitute financial advice. Please consult with a tax professional before taking action.