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Stock Donations: What To Know

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There are plenty of traders and investors that are separately also trying to figure out the best ways to donate their money. It may not be the most obvious, but integrating your investment strategy with your philanthropy is the most tax-effective tactic. One of the best things about stock donations is that you can donate to any 501c3 charity, similar to cash, while also helping to optimize your portfolio. The global philanthropy sector continues to grow, and there are plenty of important causes that require money and resources year after year.

However, you might not be aware of exactly how appreciated stock donations work, or how you can use them to benefit your portfolio as much as possible. Some investors might be interested in stock donations because it’s a part of an overall tax-planning strategy. Other entrepreneurs may also want to figure out the best way to contribute to a cause that you believe in. Either way, there are aspects of stock donations that you should know about.

For those who are unaware, a stock donation is simple. A stock donation occurs when an individual or organization offers stock, ETF, or another kind of security as a donation. There are many wealth advisers and entrepreneurs that decide to donate stocks, and billions in stock are donated every year to various charities all across the world. Just last year, Warren Buffet, one of the most well-known investors in the world, donated billions of dollars in stock to several charities.

Benefits Of Stock Donations

Investors and traders of all kinds understand the capital gains tax, which is the tax that must be paid on stock profits. The beauty of stock donations is that you can avoid the capital gains tax once you donate shares, make this strategy up to 37% more tax efficient. For those who are unaware, the maximum capital gains tax in the United States is 20% for long-term holdings or stocks that you hold for over a year. The capital gains tax rate is in addition to your medicare (3.8%) and state taxes, which can be as high as 13.3% in California.

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If you were to donate $100,000 in stock to a charity – it means that the full $100,000 goes to the charity. However, if you were to sell the stock and donate the proceeds, you would have to pay capital gains tax on the appreciated stock before donating anything. The benefit is clear: you don’t have to pay taxes, AND the charity receives more money than it otherwise would. If you are living in a state with a combined federal and state capital gains tax rate of 30%, for example, the charity would only receive $70,000 once you sold your stock and donated the proceeds. Of course, it should be noted that capital taxes change depending on filings and taxable income.

Situations For Stock Donations

Some investors/traders may just need to adjust your portfolio to account for some very obvious risks. For wealthier individuals, a stock donation might be a great way to rebalance your portfolio, while also donating to a cause that you believe in. In this way, you can help channel your money towards some incredible organizations, while also rebalancing your portfolio and adjusting it accordingly to the financial market(s).

Another strategy is to consider the fact that donating stock before the end of the year is a great tax-planning strategy. Let’s say that you are bullish regarding a specific stock, and it has appreciated since you purchased it. You can donate some stock before December 31 as a way to reduce future capital gains or use it as an income tax deduction.

The Importance Of Due Diligence

The last thing that anyone wants to do is to donate to a good cause only to find that you donated stock to a charity that isn’t reputable whatsoever. You may know someone in your network that understands what charities are the best to consider, or evaluate the charity’s mission and/or specific programs. Only one-third of donors speak to the staff of a particular organization, and this might be a step that you want to take for more peace of mind regarding how your donation will help a particular charity.

A simple Internet search might be all it takes to find out more about the reputation of an organization, and you can also search their name on various social media platforms to find out more. If you still can’t find the information you need, consider using a charity assessment organization as a guide. If you want your money to go to the right place, you should do your best to find out more about the transparency and accountability of the organization. Another easy way to do this is to evaluate the organization’s financials for yourself.

How To Donate Stock

Giving with stock has become easier over the years. There are tools like Cocatalyst.org appreciated stock donations that will facilitate this process for you. Not every charity or organization directly accepts stock, which is why tools like Cocatalyst can be helpful. Alternatively, if you want to donate stock through paper forms, you can contact the charitable organization to verify that they have a brokerage account for stock donations. After, you will need to requests forms from your broker and fill them out by pen. When it is completed, you fax in the forms to your broker’s branch office.

You should also consider timing if you want to complete a stock donation. For example, you might want to plan your stock donation months as part of your portfolio management, so that you can plan your taxes for the end of the year more efficiently.

Conclusion

You might think about donating cash or used goods to charities, but the truth is that donating stock can be a great way to save money on taxes while also maximizing your contribution. It’s no secret that some of the wealthiest people in the world have saved a significant amount of money through stock donations. Jack Dorsey, the CEO of both Twitter and Square, saved hundreds of millions of dollars through appreciated stock donations, for example.

It shouldn’t come as a massive surprise that wealthy investors and entrepreneurs find that stock donations are a better way to contribute to charities, given the fact that you receive a full market deduction while the nonprofit receives more money than they otherwise usually would.

Many investors might have a personal connection with these particular charities and causes. Black Lives Matter is a global movement that has led to protests all over the world, and you may want to consider a stock donation to that cause. Of course, if you are concerned about the coronavirus pandemic, you may consider making a sizable donation to a COVID-19 related charity. As long as you do your due diligence, you may find that stock donations can be incredibly emotionally rewarding.

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