How To Donate Stocks to Charity and Why You Should

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Donating to a charity isn’t just for the wealthy. If you own stocks, you can donate appreciated stocks to a charity. Instead of writing a check, transfer your appreciated shares to a nonprofit directly.

You will avoid capital gains tax and can claim a charitable deduction.

What Are the Tax Benefits of Donating Stock to a Charity?

Most people are familiar with writing a check or giving cash to charity but may not be familiar with the tax benefits of donating stock. Here are the tax advantages of donating stock:

• Avoid capital gains tax. If you choose to sell appreciated stock, your capital gains tax may be up to 20%. Donating the appreciated stock to the charity means skipping the capital gains tax entirely. 
• Reduction of income taxes. If you held the stock for more than a year, you’re able to deduct the full market value of the donation from your income taxes. 
• Deduct the full fair market value. If you’ve held the stock for over a year, you are able to deduct the full fair market value on your tax return.

IRS Rules for Donating Stock to Charity 

Although you can donate stock to charity, the IRS wants you to follow certain rules to ensure compliance:

1. Stock must be held for more than a year. If you want to deduct the full fair market value, the stock must be held for 12 months.
2. You must donate to a qualified charity. The charity must be an IRS-recognized 501(c)(3) so it can qualify as a tax exempt organization.
3. There are deduction limits. You can deduct up to 30% of your adjusted gross income (AGI) for appreciated stock deductions.
4. You must have proper documentation. If your stock donation is over $500, you must fill out Form 8283. If you donate over $5,000 you must also File Section B of Form 8283.
5. Use the stock’s fair market value. Your donation is valued at the average of the high and low prices on the date of the gift if publicly traded.
6. You are required to itemize your deductions. You must itemize your deductions to qualify for the benefit of donating stock.

Donating Stocks vs. Cash

Here is a comparison on the difference between donating stocks vs. cash to a charity:

How to Donate Stocks to Charity

Here are the steps you need to follow to donate your stocks:

Step 1. Decide Which Stock You Want to Donate

You likely should choose a stock that has appreciated and that you’ve had for more than a year. 

Step 2. Contact the Charity

Ask the charity of your choice for their brokerage account or donation information. Keep in mind that most, but not all, charitable organizations will accept stock donations, so check with your charity of choice to confirm that they will accept your stock.

Step 3. Work With Your Broker

Determine the value of the stock and initiate the transfer through your broker. This can be done after the fact, because you may not know the date until the transfer happens.

You will typically need your account name, address and number, the name of the stock and the number of shares you want to transfer. You’ll also need the account name and number and EIN number of the charity.

Step 4. Notify the Charity and Get a Receipt

Let the charity know what you sent and ask for a receipt. Confirm that the information on the receipt matches the stock name and number of shares you transferred. 

For IRS purposes, you need a written document acknowledging your stock donation. 

Tips on Donating Stocks to Charity

Donating stocks is a smart way to limit your taxation and to support a charity you care about. Here are a few tips to maximize this strategy:

• Use publicly traded stock. Publicly traded stocks are the easiest to donate since there is less paperwork involved. Generally, you don’t want to donate equity in master limited partnerships or other publicly traded partnerships.
• Choose the stock that has appreciated the most. If you’re trying to determine which of several positions to donate, choose the stock that has appreciated in value the most. This will provide the biggest benefit to the charity, and the biggest tax benefit to you.
• Set up a donor-advised fund. This allows you to put the shares you want to donate into a fund and then make the donations to however many charities you want, whenever you want. The bonus here is that you can take the charitable deduction when you move the stock into the donor-advised fund, regardless of when you actually transfer the shares to the charities.
• Donate from your IRA. You can get added tax benefits from your charitable contributions of appreciated stock. If you are 73 or older and are required to take minimum distributions from your IRA or other retirement account, you can donate those distributions instead of taking them in cash. This is known as a Qualified Charitable Distribution or QCD, sometimes called a charitable IRA rollover.

Is It Better to Donate Cash or Stock to Charity?

It’s a good thing when your stock goes up in value, but the sting of capital gains taxes can take some of the joy out of those earnings.

If you make charitable donations anyway, making them with appreciated stock instead of cash can help lower your tax bill.

When Is It Not a Good Idea to Donate Stock to Charity?

Sometimes it doesn’t make sense to donate your stock to charity. Here are some of those instances:

• You’ve held the stock for less than one year.
• The stock has lost value.
• You use a standard deduction on your tax return.
• The charity doesn’t accept stock donations.

Final Takeaway 

If you own long-term appreciated stock, donating it to a charity is a strategic tax move. You avoid capital gains tax, you can deduct the full market value if you’ve owned the stock for more than a year, and the charity gets the maximum benefit from the donation.

Contact the charity you wish to donate to and keep good tax records. Don’t wait until the last minute to make this donation. It may take up to three weeks to process this transaction. 

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