The Potential Tax Benefits of Donating Stock

With your taxes on the horizon, you may be wondering what you can do to help make things easier. As it turns out, donating stock to a qualified charity provides some tax benefits!

Explaining the Tax Benefits

A donor can deduct the full fair market value of the stock when it sells, even if they don’t actually sell it. The donor can also claim a deduction for any associated fees or commissions. And donors get to take an income tax deduction for the present value of their donation.

How to Qualify for a Deduction

The first step is to donate the stock. The best way to do this is by instructing your broker to sell the shares for you and then donate the proceeds from the sale. This will ensure that taxes are not taken out of your donation. If you want, you can write a letter to the IRS stating why you donated the stock, but it is not necessary.

When to Donate Stock

There are two ideal times to donate stock. The first is when the stock has a large appreciation in value. In that case, the donor can claim a charitable tax deduction for the difference between what they paid for it and its current value. The second time is when you have to sell the stock because you need cash from your portfolio. In that case, you can avoid capital gains taxes on the sale by donating it instead.

Calculating the Tax Break

The amount of the tax break is based on the value of the shares donated, how long they have been owned, and how much they are worth. The higher the value of the shares and the longer they have been owned, generally, the more tax relief you will receive.

Best Types of Stock to Donate

There are many different types of stocks that you can donate to receive a tax deduction. The most common type is stock in the company where you work, but you can also donate stocks from other companies like Apple or Amazon. You can also donate shares in mutual funds or ETFs and still get a tax credit.

The Potential Cost of Capital Gain Taxes

The IRS assesses capital gain taxes when an asset is sold for more than it was purchased for. The tax rate for long-term capital gains is set at 15%. In order to avoid this, a donor can sell their stock at a loss prior to donating it. If the value of the stock has decreased by more than $100,000, the donor will not have to pay a capital gain tax on the donation.