Benefits of Donating Securities

When most of us make a decision to support a nonprofit, the donation is in the form of cash.  If you have a portfolio of securities, it may be more beneficial for you to donate shares of stock directly to the nonprofit.  The mechanics of donating securities can be simple, and the potential benefits to you are the opportunity to deduct the value of the donated security and simultaneously avoid any capital gains that would have been associated with selling the security.

Here is an example of donating appreciated stock:

Assume that you are in a tax bracket of 28%, you have a stock that you have owned for more than a year with a market value of $10,000.00 and a cost basis of $1,500.00.  If you sell your stock, you have an $8,500.00 capital gain and your taxes associated with that gain would be $1,275.00, ($8,500.00 x 0.15).   If you then donated the net cash of $8,725.00 your tax savings associated with the donation should be $2,443.00, ($8,725.00 x 0.28).  If instead, you donated the stock directly to the nonprofit, both you and the nonprofit can avoid the capital gains taxes associated with selling the stock and your $10,000.00 donation should result in a tax savings to you of $2,800.00.

If you are ready to make a donation to a nonprofit, it could be advantageous for you to look through your portfolio and identify securities with low or even unknown cost basis and donate the equivalent market value of that security vs. processing a cash donation.

Remember that the tax aspects of charitable donations can be complex and you should check with your tax advisor to assure that the type and amount of your donation is appropriate for you.