To say that 2020 has been a trying year is an understatement. COVID-19 has claimed over 100,000 lives in the United States, and wreaked havoc on the national economy. Unemployment has reached an all-time high as hospitals scramble to find protective gear to treat the sick.
Meanwhile, the violent death of George Floyd by Minneapolis police officers has led to a resurgence in the Black Lives Matter movement, and a reckoning for many institutions, communities, and individuals who have been affected by or perpetuated racism. In times like these, it’s easy to feel small. It’s easy to feel overwhelmed, and give in to our fear that we can’t do anything in the face of these enormous issues.
Even from our homes, we can donate to the causes and organizations we admire. When we give to others, we become part of something larger than ourselves. We become part of a community, working together for a common goal.
Charitable giving lets us put our money where our mouth is, and invest in what we believe in. Whether that’s feeding and housing the less fortunate, building a new community center, patronizing the arts, or contributing to our religious institution, charitable donations connect us with others. We leave a positive mark on the people around us.
So if we can make our donations go even farther, for our beloved organizations and for ourselves – why wouldn’t we?
When you think of charitable giving, you probably think of cash donations: throwing dollars in the basket at church, or writing a year-end check to the local soup kitchen. But cash is hardly the only way to donate money to an organization.
If you own appreciated stock, it is almost always better to donate stock than it is to donate cash. This is true for you and for the organization – everybody wins! This article will demystify the process of donating stock, and help you get started making the biggest possible impact on your community.
Why Should I Donate Stock?
The short answer? Capital gains tax.
When you donate stock from your broker directly to a charitable organization, you do not have to pay capital gains tax, which can be up to 37% of your stock value. Say you own stock worth $15,000. If you sell the stock, you pay a capital gains tax up to $5,550, leaving you with $9,450 to donate to the charity of your choice and write off on your taxes. Instead, if you donate stock directly to the charity, they receive the full $15,000 market value, and this is the amount you write off on your taxes. That extra $5,550 can be huge for the organizations!
I know what you’re thinking: “Why would I want to sell my appreciating stocks? I’m happy with my stock portfolio as it is.” Well, it never hurts to give a stock portfolio a good checkup. Donating some of your appreciating stocks – not all of them, of course! – gives you an opportunity to check your portfolio’s balance. In buying new shares, you void the existing gains.
What About The Organization?
Many charities prefer stock donations to cash donations, for the simple reason that they end up with a higher monetary value. They get to keep the full value of your shares, instead of their taxed value. This means more playgrounds, more textbooks, more meals served, more programming – more impact!
If you decide to donate stock manually, you should let the organization know ahead of time. If they aren’t set up to receive stock donations, it may take them some time to figure out the best way to do it. In other words, don’t leave it until December 30 to bring this up! If you’re working with a stock donation service, you won’t have to worry about this – but more on that later.
Isn’t It Too Risky, or Too Complicated?
Short answer: no. There are almost no tax risks to donating stock instead of cash. To receive the best deduction, donate appreciated stock that you have held for a year or more. This way, you get a tax deduction equal to the stock’s fair market value.
You will need to make sure you itemize your deductions come tax season – this is the best way to claim the full amount that you can deduct based on your charitable contributions.
If you’re worried about paperwork – there are services that streamline this entire process for you! You can use tools such as Cocatalyst, which make stock donations easier for donors and easier for charities. This is a free service that takes care of everything, from your donation to the organization’s receipt.
All you have to do to donate stock through Cocatalyst is:
- Visit their stock donation page.
- Fill out their form.
- Complete the signature.
Not any more complicated than a cash donation, right? From there, Cocatalyst liquidates the stocks, sends the money on to the organization, and issues you a tax receipt.
Donate stock instead of cash. It’s better for you and better for the organization.
Use your stock portfolio to save on your taxes, and have the biggest impact on the causes and organizations you believe in.
This content is brought to you by Hannah Madison.