Donating Appreciated Stocks: A Smart Strategy for Tax-Efficient Giving

Many taxpayers look for ways to reduce their tax bill while supporting causes they care about. One often overlooked but highly effective strategy is donating appreciated stocks instead of cash. Done correctly, this approach can provide significant tax savings while allowing your charitable contributions to go further and make a greater impact.

Why Donated Appreciated Stocks Can Be More Powerful Than Cash

If you sell an appreciated stock, you typically owe capital gains tax on the increase in value. That tax reduces the amount of money ultimately available for charity. By donating the stock directly to a qualified charity or a donor-advised fund (DAF), you can often avoid capital gains tax entirely while still receiving a charitable deduction. In many cases, this allows you to give more to charity at a lower after-tax cost than writing a check.

Key Tax Benefits of Donating Appreciated Securities

Donating appreciated stock can help you avoid capital gains tax, as long-term securities donated directly are not taxed on their appreciation. The charity or DAF can sell the stock tax-free and use the full proceeds for charitable purposes. Donors may also receive a deduction for the full fair market value of the donated securities if they itemize, subject to IRS limits. This approach improves overall tax efficiency by removing highly appreciated assets from your portfolio while preserving cash for personal use or reinvestment.

Using a Donor-Advised Fund for Stock Donations

Donor-advised funds are a popular vehicle for stock donations. A DAF allows you to take an immediate tax deduction in the year of contribution, donate stocks, ETFs, or mutual funds in a single transaction, and recommend grants to charities over time. In addition, donated assets may have the potential to grow tax-free before being granted. This flexibility makes DAFs especially useful when income is unusually high or when charitable goals span multiple years.

IRS Rules to Keep in Mind

While donating stock can be highly beneficial, it is important to follow IRS rules. The stock must generally be held for more than one year to receive a fair market value deduction. Deductions for donated securities are typically limited to 30 percent of adjusted gross income, with a five-year carryforward for excess amounts. Donations must be made to a qualified charitable organization or DAF sponsor. Failure to follow these rules can limit or disallow the deduction.

Who Should Consider Donating Stocks

This strategy may be especially effective for taxpayers who hold stocks with significant unrealized gains, plan to itemize deductions, expect a higher-than-normal income year, want to support charitable causes without reducing cash flow, or are already considering selling appreciated investments.

Final Thoughts

Donating appreciated stocks is one of the most tax-efficient ways to give to charity. By avoiding capital gains tax and securing a charitable deduction, donors can often increase their charitable impact while reducing their overall tax liability. Reviewing your portfolio and charitable goals can help ensure donations are structured correctly and aligned with your broader financial plan.der financial plan.

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The information provided in this blog post is intended for general informational purposes only and should not be construed as legal or tax advice. While every effort has been made to ensure the accuracy of the information, tax laws and regulations are subject to change, and individual circumstances may vary. For personalized advice and to ensure compliance with current tax laws, it is strongly recommended that you consult with a qualified tax professional, financial advisor, or legal counsel. The author and publisher of this blog assume no responsibility for any errors or omissions, or for any actions taken based on the information contained herein.