If you have stock that increased in value since you bought it at least a year ago, you can often save more on your taxes by donating the stock to charity rather than selling it and donating the cash. If you donate stocks or other assets worth $500 or more, you're generally required to fill out a special tax form to detail your donations. Remember that donations will only save you money on your taxes if your total deductions, including from donations, are more than the standard deduction and you choose to itemize your deductions.
If you are planning on claiming a charitable deduction of stock, you will need to itemize your deductions rather than simply taking the standard deduction. Keep in mind that this will only be valuable to you if your itemized deductions are of a higher value than the standard deduction.
Stock Donation Opportunities
If you own stock that has appreciated in value and you've had it for more than a year, then you will generally owe capital gains tax if you sell it. However, if you donate it to charity, you can generally deduct the value of the stock up to 30 percent of your adjusted gross income and not owe capital gains tax.
If you've had the stock for more than a year and it's lost value, it may make sense to sell it, take a capital loss to offset other capital gains you would owe tax on, and then donate the cash for the charitable deduction. Of course, if you think that it may appreciate in value later on, you may want to postpone your donation until it recovers its value.
If you donate stock you've owned for less than a year, you're generally required to deduct only the amount you paid for it, not however much it's gone up in price. In this case, it can be worth considering whether the stock is likely to continue to appreciate and whether it's then worth delaying the donation for a larger deduction.
Itemizing Your Deductions
You can generally only claim charitable donations on your taxes if you itemize your deductions, rather than taking the standard deduction. This is generally only worthwhile if your total itemized deductions are worth more than your standard deduction.
In 2017, the standard deduction was $6,350 for single people and married people filing separately. It was $13,700 for married couples filing jointly and $9,350 for people filing as heads of households.
As of tax year 2018, those standard deduction amounts have all risen. The new amounts are $12,000 for individuals and married people filing singly, $18,000 for heads of households and $24,000 for married couples filing jointly.
If your donations and other deductions don't bring your potential itemized deductions above these levels, you'll likely want to take the standard deduction instead of itemizing. Because of this, you generally won't get any tax benefit from your donations.
- IRS: Publication 526 - Charitable Contributions
- 4 Reasons to Donate Stock | Fidelity Charitable
- Charles Schwab: Charitable Donations: The Basics of Giving
- Forbes: IRS Announces 2017 Tax Rates, Standard Deductions, Exemption Amounts And More
- Forbes: 2 Free Issues of Forbes New: IRS Announces 2018 Tax Rates, Standard Deductions, Exemption Amounts And More
- If you hold stock that you wish to donate, but it has lost value, you should cash out your stock instead of donating it directly. This will allow you to take a deduction for the loss and then make and claim a cash donation.
- If you are using IRS Publication 78, it is a good idea to check for any changes. You can do this electronically, starting with the IRS website.
- Avoid donating any stock that shows a loss. It will nullify your ability to take a deduction on that loss.
Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.