Want To Save The Most On Your Taxes? Try Donating Stock
It’s no secret that raising kids can be expensive. When we’re trying to raise a family and plan for retirement at the same time, tax season can be a frightening prospect. By December 31, we’re usually scrambling to find every deduction we can take to make sure our income covers our family’s needs.
Year-end charitable donations are a great opportunity to make a difference in our communities, and a common way to increase our tax deductions. We take pride in the organizations we are able to support, whether that’s our kids’ after-school program, our religious institution, arts and culture, or a worthy social cause. No matter what we’re able to give, we know any amount helps the organization.
There’s a way to increase our impact on the charitable organization of our choice, while saving more on our taxes. And it’s not just increasing the amount we’re donating – even keeping our donation level the same, we can do this just by changing the way we are donating money.
Donating appreciated stock is the most tax-efficient way of donating to a charitable institution.
How Do Stock Donations Save Me Money?
It’s simple: stock donations save you on your taxes because you don’t have to pay capital gains tax.
If you have a stock that you have held for a year or more and has appreciated, it is almost always better to donate this instead of cash. Let’s say your stock increased in value $20,000 over the last year, and you’d like to make a $20,000 year-end contribution to a charity.
If you sell the stock, you will pay a capital gains tax up to 37% – in this case, $7,400. That will leave you with $12,600 to donate to the charity and write off on your taxes. Of course, any charitable organization will be glad to see this donation from you – but there’s a way to increase your impact and avoid the tax.
Instead of selling this stock, you can donate it directly to the charity, and completely avoid capital gains tax. This way, the organization receives the full $20,000, and this is the amount you write off on your taxes.
It’s a win-win: you avoid capital gains tax, and your chosen charity gets to keep the extra funds. That could mean a new children’s library at your church, expanded after-school programming with more staff, or a new summer camp adventure.
What If I Don’t Want To Sell My Stock?
We understand – a lot of people are attached to their stock portfolios just the way they are. But, donating appreciated stock gives you an opportunity to check the balance of your portfolio as a whole. Every portfolio needs a balance check every once in a while! Plus, donating the appreciated stock will help you void existing gains in your portfolio.
There is one time it’s not a good idea to donate stock, and that is if you’re considering donating a losing stock. In this case, you should sell your losing stock and take the capital loss. Then, you can donate the cash amount to the charity. Your chosen organization sees the same cash value either way.
Isn’t It Complicated?
It definitely doesn’t have to be! If you are donating stocks manually, you will want to reach out to your chosen organization early. Not all organizations are set up to receive stock donations – and you definitely don’t want to find that out on December 31!
If you don’t want to deal with the paperwork yourself, there are plenty of organizations that streamline the entire process for you. For example, Cocatalyst was founded to make stock donations just as straightforward and painless as cash donations. All you have to do is:
- Visit Cocatalyst to donate stock from your broker to a charity.
- Fill out and submit their form.
- Complete the e-signature request.
The organization you’re donating to can also make a free profile, so that Cocatalyst can streamline all of their stock donations from any number of clients.
This is assuming the organization isn’t already set up with a service to accept stock donations! Many charities are becoming more aware of this simple, efficient way to increase the size of their donations even within their existing donor base. When you reach out to ask whether they accept stock, they’ll probably be jumping for joy!
In Conclusion…Stock donations help everyone. The charitable organization gets to see a larger cash value, and you get to save on your taxes. You can’t get simpler than that. For a full guide, read more about how to make a stock donation.