Why sell shares from your portfolio when you can gift them? If you own stocks that have increased in value, you might want to consider donating those shares to charity rather than selling them.
Why, exactly? Donating appreciated securities to a tax-exempt charity may allow you to improve your tax situation while benefiting charities that matter to you. If you have held the stock you intend to gift for more than a year, you may be able to deduct from your taxes the fair market value of the stock in the year that you donate it. If the charity is tax-exempt, it may not face capital gains tax on the stock if it sells it in the future.1 It’s a win for you and a win for the charity.
It works like this:
Investor Susie bought 1,000 shares of ABC Company for $10 per share, for a total cost of $10,000. The shares performed well and increased in value to $20 per share, for a total value of $20,000. Susie decides to gift the shares to a tax-exempt public charity. When she makes the gift, she receives a tax deduction of the fair market value on the date of the gift, $20,000. The charity receives the full $20,000, which it then sells to support its operations. The $10,000 in appreciation does not result in taxes due for either Susie or the charity.
On the other hand, if you sell shares of appreciated stock from a taxable account and subsequently donate the proceeds from the sale to charity, you will likely face capital gains tax on any gain you realize, which effectively trims the tax benefit of cash donation.2
There are many ways to give to charities. It’s important to note that one strategy is not appropriate for all, and that there are limitations to the value of donations that can deducted from taxes in any one year. It can be complicated, and we strongly suggest speaking with your tax professional and your financial advisor to ensure that you are meeting your charitable goals in the way that is best for both you and the charities you support.
Of course, with donations of any value and of any kind, we suggest keeping excellent records and maintaining receipts for all transactions, regardless of size.
Andrea L. Blackwelder, CFP®, ChFC, CDFA® and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with the Denver Financial Advisors at Wisdom Wealth Strategies.