Donate Securities and Fall in Love with Tax Season

Spread the Love by Donating Securities

Do you associate charitable giving with the holiday season? If so, you’re not alone. An estimated 26% of annual nonprofit revenue is generated in December alone, as feelings of goodwill abound and people celebrate holidays like Giving Tuesday. And, of course, we can’t forget those calendar deadlines for tax deductions! But the organizations you love to support also depend on donations beyond the holidays to ensure cash flow and facilitate budgeting. What if you could implement a year-round giving strategy that benefits your tax planning just as much as your favorite charities? Read on to learn how you can do good for the nonprofits you love and your tax strategy by donating securities.

Why Not Just Write a Check?

There’s nothing wrong with giving cash to your favorite nonprofit organizations, but you could save yourself capital gains taxes and leave more for charitable causes by donating securities instead.

Let’s say you’d like to donate to your local women’s shelter. You have some shares in a company that has yielded a good return. You could sell, write a check using the proceeds, give that check to a 501(c)(3), and benefit from the tax write-off. The only catch: because those shares have done so well, you’re in for an unpleasant surprise when tax season rolls around. Thanks to capital gains taxes, you could owe up to 20% on the gains for long-term holdings. Ouch!

Instead of selling the shares, donate them directly to the charity organization you want to support. You don’t have to pay capital gains taxes, and you still get to reap the benefits of tax-deductible donations. The charity gets to sell those shares without paying capital gains taxes either. The result? Without capital gains taxes taking a slice of the pie, your favorite non-profit gets a larger gift than it would otherwise receive post-taxes, and you can breathe a little easier when April 15th rolls around.

Make it Easier to Give

With all of the benefits of donating securities instead of cash, you’d think it would be a common strategy. Instead, only around 10% of high-income taxpayers take advantage of the tax benefits available through gifting securities. Many people worry that the process will be complicated, or that their favorite nonprofit organization isn’t equipped to receive donated stock.

Gifting securities through donor-advised funds is an easy and beneficial way to maximize your generosity. Instead of gifting stock directly, you can set up a donor-advised fund, which acts as a charitable investment pool. There’s only one form to file with your tax return instead of multiples, and you’re able to take a deduction for the current year and then donate to multiple charities over time. In addition, many 501(c)(3)s that aren’t equipped to accept individual stocks can accept gifts through donor-advised funds more easily.

Donor-advised funds also make it easier to gift restricted stock to nonprofit organizations. By giving to a donor-advised fund instead of a private foundation, you may receive a deduction of up to 30% of your adjusted gross income rather than up to 20%.

Sweeten the Deal

If all of that wasn’t enough incentive to update your charitable giving strategy, gifting securities can help you unwind concentrated stocks and set you up for future tax benefits.

If you have high-performing shares that will land you with capital gains taxes down the road, gift those! You can repurchase the same type of shares, or some with a similar exposure, creating the potential to harvest tax losses, which may help you offset capital gains in the future. Of course, if you have concentrated stock, gifting securities is a great way to rebalance your holdings without incurring a mountain of capital gains taxes.

Year-round Generosity

With all of the benefits of gifting securities, establishing a well-planned tax strategy is simply a good way to be smart about money all year long– not just on December 31st. You can provide support to the causes that mean the most to you while reaping the tax benefits, not to mention the valuable lessons your kids or grandkids can learn by watching you practice generosity throughout the year! If you want to learn more, ask your tax preparer or financial advisor to help you create a smart donation strategy and give a little love to your favorite nonprofits.