Right now there is some interest in finding ways to help worthwhile causes without having to donate actual cash. While you can donate your time and your old stuff, it is also possible to donate stock and other assets to charity. This can actually be a good solution, since it comes with tax advantages for the donor, and it has the potential to benefit the charity more than outright cash.
Donating your stocks to charity
When you donate a stock that has gained in value, you do not have to pay capital gains tax and you can itemize a tax deduction for the entire amount of the stock. For example, say you bought 100 shares of a stock at $10 a share a couple of decades ago. Now that stock is worth $20 a share. What was worth $1,000 when you bought it is now worth $2,000. Normally, if you sell the stock, you have to pay long-term capital gains taxes on the $1,000 that you made. If you donate the stock, however, you are exempt from the capital gains tax. You can also itemize the entire $2,000 on your taxes. The charity can choose to sell the shares immediately, for $2,000, without paying taxes (due to its status), or it can hang on to the shares in the hopes that it will yield more down the road.
If you want to donate a stock that has lost in value, you are actually better off selling the stock on your own and then donating the proceeds to charity. This is because you can take a deduction for a capital loss when you sell an equity that has declined in value. If you just donate the stock, you cannot take the capital loss deduction. And, of course, once you donate the proceeds from your stock sale, you can take the deduction for donating to charity. If you hand over the stock outright, you only get one deduction for the value of the stock.
Before making your decision, it is a good idea to consult with a tax professional and/or financial planner who can help you make the best choice, and make sure that all the proper steps are followed.
Another way that you can put your assets to work for charity is to make use of a donor-advised funds. Donor-advised funds are registered as charities themselves, and they make grants to other charities out of individual accounts. While these funds are not legally required to give to the charities you specify, most of these funds take your wishes into account and will make grants as advised by donors. Fidelity, Vanguard and Schwab offer the the largest charitable donor-advised funds.
When you donate to one of these funds, you get to take an immediate deduction on your taxes. It is also possible for you to donate a number of other assets to donor-advised funds. Depending on the rules of the fund, you can donate cash, stocks, bonds, real estate and even art and other assets. In many cases, using donor-advised funds can save you over using a personal foundation. You don’t have to worry about staff, or paying hefty private lawyer fees. (Forming your own foundation might be desirable, however, if you want more control over the grants, or if you have a very specific giving goal in mind.)
If you are re-doing your investment portfolio and wealth management strategy, and interested in how you can use some of your assets to benefit others, you might consider donating your stocks to charity, or contributing to a donor-advised fund. You can do a lot of good for others, and reap some tax advantages as well.