When it comes to charitable giving, most people think of writing a check or donating cash. While these are generous options, there's an often-overlooked strategy that can stretch your donation further: gifting appreciated stock. If you own stock that has significantly increased in value, giving it to a qualified charity instead of cash is not only impactful for the cause you support but also makes better financial sense for you. Here's why.

 The Capital Gains Tax Problem

When you sell a stock that has appreciated in value, the IRS taxes you on the gain—the difference between what you paid for the stock and its current value. The tax rate on long-term capital gains is typically 15% or 20%, depending on your income level.

For example:

- You bought stock for $5,000, and it's now worth $20,000.

- If you sell the stock, you'll owe capital gains tax on the $15,000 profit.

- At a 20% tax rate, that's $3,000 out of your pocket.

But if you donate the stock directly to a charity, there's no capital gains tax for anyone to pay. The charity gets the full $20,000, and you avoid the $3,000 tax bill.

 The Double Tax Benefit

Not only do you avoid capital gains taxes, but you also get a charitable deduction for the full fair market value of the stock (if you've held it for more than a year). Using the example above, you could claim a $20,000 deduction, potentially reducing your taxable income significantly.

This means:

1. You keep more money in your pocket.

2. The charity receives a larger donation.

Compare that to selling the stock, paying taxes, and donating the remaining $17,000 in cash. Both you and the charity come out ahead when you donate the stock directly.

 Easy Process, Big Impact

Many people shy away from donating stock because they assume it's complicated, but most charities are well-equipped to accept these types of gifts. You simply transfer the shares to the charity's brokerage account, and they take care of the rest. If your favorite charity doesn't accept stock, consider a donor-advised fund, which can facilitate the process and allow you to recommend grants to multiple organizations.

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 When This Strategy Makes Sense

This strategy works best if:

- You have highly appreciated stock (held for more than a year).

- You plan to itemize deductions on your tax return.

- You want to maximize the impact of your charitable giving.

It's also worth noting that if you're subject to required minimum distributions (RMDs) from a retirement account, using appreciated stock for charitable gifts can complement other strategies, like qualified charitable distributions (QCDs).

 Consult Your Advisors

Before making a gift of appreciated stock, it's wise to consult your financial advisor or estate planning attorney. They can help you ensure the gift aligns with your broader financial and philanthropic goals while maximizing your tax benefits.

 Conclusion

Gifting appreciated stock is a win-win: you avoid capital gains taxes, potentially reduce your taxable income, and empower your charity of choice with a more significant donation. It's a simple yet powerful way to give smarter, not harder.

This year, as you plan your charitable giving, consider taking a closer look at the stock you hold. Your portfolio—and the causes you care about—will thank you.

Have Questions? 

As an estate planning attorney, I specialize in helping clients create tax-efficient strategies to achieve their financial and philanthropic goals. Use the link below to contact me to learn more about how gifting appreciated stock could work for you.

https://letsmeet.io/scottlynett/free-15-min-consult-phone