The tax benefits, however, depend on your annual income. Who Should Donate Stock?Īnyone with stock that has appreciated in value that they’ve held longer than one year should consider stock donations. You get the tax benefits in the year of the transfer, and you can donate from the fund to charities over time. Your transfer will give you the same benefits as donating the stocks to a charity directly. If you’re not ready to make a large donation of stock to charity, but still want to reap the tax benefits, you can open a donor-advised fund-which is like an investment account to support charities you care about-and move stock earmarked for donation into the fund. “This accomplishes two things-you’re increasing your itemized deduction and you avoid the tax because you’re donating the stock to charity,” says Elsensohn. If your total tax deductions for the year are lower than these amounts, your tax bill won’t benefit from donating stock to charity.Įlsensohn recommends bunching deductions, or making all of your charitable donations for the next few years in one year, so you can itemize an amount that’s higher than the standard deduction. When you’re planning out your donations for the year, you’ll want to keep in mind that the standard deduction for 2021 is $12,550 for single filers and $25,100 for married couples filing jointly ($12,950 and 25,900 in 2022, respectively). The Standard Deduction and Charitable Giving The tax deduction limit for gifting stock to a public charity is up to 30% of your adjusted gross income, though you can carry any excess over for up to five years. Here’s the other benefit: You’ll get a tax deduction for the full fair market value of the stock at the time of the transfer. This way, the amount that would have gone to the Internal Revenue Service (IRS) as taxes stays with the charity. Meanwhile, if you donate the stock directly to a charity, you pay no capital gains tax-and neither does it, assuming it’s a tax-exempt non-profit (the only kind you should be considering, really). “By the time you sell the stock and pay the taxes, you’re losing 25% to 35% of the value,” says Kelly Elsensohn, a wealth advisor and certified public accountant ( CPA) at WealthSource, a national wealth management firm. State income taxes and additional surtaxes can further reduce the amount you’re hoping to donate. The amount you owe depends on whether you’ve owned the shares for more than one year or less than one year and also on your total annual income. Here’s why: When you sell shares of stock that have appreciated in value over time, they are subject to capital gains taxes. This is especially true if you’re planning to sell off shares to fund your donation. If you’ve got a hefty investment portfolio flush with gains from the past couple of years, a stock donation may help you donate much more efficiently. Here’s a guide to how you can donate stocks and reap tax rewards for your generosity. The truth is that donating stocks offers benefits for both you and the lucky charity. According to a recent study by Fidelity Charitable, only half of respondents knew you could even donate stock, and fewer than one in five have actually done so. Donating stock is an underutilized practice. Put away your checkbook and open up your brokerage account to maximize the impact of your charitable donations. ’Tis the season for charitable giving, whether you’re looking for a mindful holiday gift or tax break-or both.
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