Donating Stock to Charity Creates Double Tax Savings
by Matthew Abrams, CPA - January 19, 2018
Donating an investment, such as stock, mutual fund or real estate, that has significantly gone up in value creates a double tax saving. First, you get a tax deduction for the value of the investment donated; second, you also avoid paying taxes on the investment when you eventually sell it. People often sell a stock, and then donate the proceeds to a charity, which creates a tax bill for selling the stock. In these cases, it’s a no-brainer to donate the investment directly to charity, since you avoid paying tax on the capital gain. If you donate the investment directly to a charity and have the charity sell it, the charity does not pay taxes on the gain since the charity is tax exempt. It's a win-win!
The trick is to help the charity receive the investment. Generally speaking, most large charities have an investment account, while many smaller charities do not. I work with clients to help their favorite charities (e.g. church or synagogue) set up a low-cost investment account, using popular brokerage accounts such as Vanguard, to facilitate the donation. The brokerage account won’t charge you anything to transfer the stock, and the charity will most likely pay an estimated $20 to sell the donated stock, so cost is not an issue.
Another tip: Ensure the charity is a U.S. charity, since foreign charity donations are not eligible for you to take a tax deduction.
Please email firstname.lastname@example.org with any questions you have.