One of the most tax-efficient ways to give is by donating appreciated assets, like stocks or real estate. When you donate assets that have increased in value since you purchased them, you avoid paying capital gains tax on the appreciation.
On top of this, if you itemize deductions, you can claim the asset’s full fair market value as a charitable contribution. This makes it much more efficient than giving cash and is almost like receiving a double tax deduction.
For example, say you purchase stocks for $5,000, and over time, they become worth $50,000. You want to make a donation of $50,000 to your favorite charity, so you decide to donate the shares of stock. By donating the stock shares, you get to deduct the full $50,000, instead of owing capital gains tax on the $45,000 profit. The charity will then get to sell the stock with no tax.
Donating stocks that have grown significantly in value allows you to support your valued causes without reducing your portfolio or donation’s overall value because of the tax implications of selling the investment. This method is particularly effective for those with diversified portfolios who want to rebalance their investments while giving back.
Examples of assets you can donate include stocks, bonds, exchange traded funds, real estate (full properties and fractional interests), business interests, mineral rights, and even crypto currencies.
You can donate stocks by providing your financial advisor with the organization’s account number and the DTC number of their investment firm. Be sure to let them know to expect your donation so they can provide you with the appropriate gift receipts. For other types of assets, reach out to the charity ahead of time to discuss your gift to make sure they can accept the gift.
