Donating Stock vs. Cash: The Tax-Saving Strategy You May Be Missing
When I look over tax returns of prospective high-net worth clients, there’s one tax-savings opportunity I see missed more than others.
Folks are donating cash rather than appreciated securities.
What does this mean and what are they missing out on?
👇
When you think about charitable giving & taxes, you might think of deducting the $100 check written to a charity or deducting the resale value of donated furniture.
Did you know you can also donate stock and other securities?
Donating appreciated securities to a 501(c)(3) charity has TWO tax benefits.
The unrealized gain never gets taxed.
You receive a charitable deduction equal to the market value of the security on the date of donation.
This is a much better move than selling the investment and donating the resulting cash.
If you go THAT route you’ll either a) have LESS after-tax funds to donate or b) need to sell MORE of your investment to yield the desired level of after-tax funds to donate.
Donating appreciated, long-term securities is an easy way to reduce capital gains tax exposure AND meet your charitable giving goals.
Your favorite charity can’t accept stocks? Run the donation through a donor-advised fund (DAF).
Holdings looking so good you don’t want to give them away? Donate them anyway, but then use free cash to buy back your position. You’ve essentially increased your tax basis for the mere cost of transaction fees.
Be mindful of income-related deduction limitations, holding period requirements, and matters specific to your own situation that may make this strategy less appealing or moot, e.g., IRA QCDs being a more valuable approach, not meeting itemized deduction thresholds, etc.
