Want to Save More This Tax Season? Try Donating Stock

If you’re a Saving Advice reader, then you already subscribe to our most basic principle: the more money you save, the better! Throughout the year, we carefully put away a percentage of our paychecks, monitor our spending, and watch with pride as we are able to grow a reliable safety net.

And then April 15 rolls around… and for too many of us, a big chunk of that savings goes to paying our state and federal taxes. The entire year of work can be dramatically slashed in the blink of an eye.

On the one hand, major expenses like this are part of why we meticulously save in the first place. You’re not losing your savings – rather, your savings are doing exactly what they’re supposed to do, and helping you pay big bills promptly.

But, most of us would prefer to see most of those savings stay in our accounts, rather than go toward taxes. Charitable donations are a great way to reduce the amount of taxes we’ll pay – but donating cash is not the most tax-efficient way to donate to a charitable organization.

More and more, people are discovering that donating stock saves them the most on their taxes, year after year.

How Does Donating Stock Help Me Save?

The less taxes you pay, the more you can put in your savings account. Donating stock helps you save because it helps you avoid capital gains tax.

Let’s say you have a healthy stock portfolio, with appreciated stocks that have increased $10,000 since last year. That’s great! Let’s say also that you want to use that $10,000 to donate to a charitable organization of your choice, allowing you to take a bigger deduction this year on your taxes.

If you sell the $10,000 of stock, you will have to pay a capital gains tax of up to 37% – in this case, $3,700. That leaves you with $6,300 to donate to your organization and to write off on your taxes.

Instead, if you donate the $10,000, neither you nor the organization will have to pay capital gains tax. When the organization liquidates the stocks, they are able to keep their full market value, and that is the amount you write off on your taxes.

An extra 37% of a major year-end donation can make a huge difference to an organization, in addition to saving you money on your taxes. You’ll be able to see the impact of your money right before your eyes: a new community center, expanded programming at your religious institution, or greater outreach for a cause you admire. Donating stock helps you and your charitable organization of choice – everybody wins.

File Your Taxes with H&R Block

What Do I Need To Know?

The considerations of donating stock really are this simple – but there are a few things to keep in mind.

Maybe you’re happy with your stock portfolio as it is. That’s okay! We know plenty of people don’t want to mess with a portfolio that’s serving them well. But, even a healthy stock portfolio needs a check-up occasionally. Donating appreciated stock creates an opportunity for you to re-balance your portfolio. You can buy up more stock to replace the stock you sold, and thus void existing and future gains.

The one situation where donating cash is better than stock is if you are considering donating losing stock. In this case, it’s better to sell the stock, take the capital loss, and donate the cash to the organization. The organization will receive the same amount either way in this scenario.

You also want to make sure you are donating appreciated stock that you have held for a year or more. This will get you the biggest benefit.

And, of course, make sure you take an itemized deduction come tax season.

Isn’t It Complicated?

If you are planning to donate stock manually, you’ll want to make sure your chosen organization has an expert on staff who can work with you on the process. If you are making a year-end contribution, reach out in advance so you can get your donation in before the deadline, even if the organization gets overwhelmed.

You can also use online tools that streamline the process of stock donations for you. Cocatalyst is a free service that makes stock donations as easy as cash donations. All you have to do is go on their website, fill out their form, and complete the signature. From there, they take care of liquidating the stocks and sending a check to the organization, and a tax receipt to you.

You don’t have to wait until the end of the year – get started donating stock and saving big on your taxes today. To read more, learn more about making donations from your broker to charity.