If you’ve ever donated to a nonprofit, you’re probably familiar with cash giving — you write a check or make a credit card payment, and your money is put to work supporting the causes you love. But did you know that cash isn’t the only thing you can donate to charity? Many donors are choosing to give shares of stock because it comes with some pretty big benefits.

But first, what is stock? Stocks are a type of investment that represents an ownership share in a company. When a stock increases in value over time, that’s known as “appreciation.” While it might seem confusing or difficult to donate stock, it’s actually pretty simple. We’ve streamlined the process, so you can make a bigger impact on causes you care about.

Maybe your stocks have appreciated greatly since you purchased them. Maybe a surge in the value of one of your holdings has thrown your portfolio off balance. Maybe you just want to refocus on other investment categories. If you also give to charity, these scenarios should encourage you to review your investment portfolio with a donation strategy in mind.

Why? Because donating stock directly to charity is one of the most tax-smart ways to give. Yet, it is often not well understood or widely used. 

Giving appreciated stock you’ve held for more than a year is better than giving cash. 

If you donate stock that has increased in value since you bought it more than a year ago – and if you itemize deductions — you can take a charitable deduction for the stock’s fair market value on the day you give it away. You’ll also avoid capital-gains taxes on the increase in value over time, which you would have had to pay if you sold the stock then gave the charity the cash proceeds. You can deduct the fair market value only if you hold the stock for more than a year before giving it away. If you’ve held it for less than a year, your deduction is limited to your cost basis — what you paid for the stock –, not the current value.

By donating stock that has been appreciated for more than a year, you are actually giving 20 percent more than if you sold the stock and then made a cash donation. The reason is simple: avoiding capital gains taxes.

If it’s a losing stock, it’s better to sell it and give the cash. 

If the stock has lost value, it’s better to sell the stock first and give the cash to the charity. You’ll still be able to deduct your charitable donation if you itemize, but you’ll also be able to take a capital loss when you sell the investment.

Ask the charity and brokerage firm about the procedure and time frame for giving stock. Most banks and brokerage firms require a letter of instruction or letter of authorization to transfer the shares to charity, and a mutual fund company may have a special form. It’s a good idea to start the process at least a week before December 31, so the transfer has plenty of time to be completed during the holidays. Jane Wilton, general counsel for the New York Community Trust, recommends transferring mutual fund shares a few weeks earlier. “Some mutual fund companies are faster than others,” she says.

You can buy extra time with a donor-advised fund. 

Some people may not be interested in donating stock because they think it will require a lot of paperwork and phone calls, or that their chosen charity may not be able to easily accept a stock donation. 

If you’d like to transfer shares when the value reaches a certain level but want extra time to decide which charity to support, you could give the stock to a donor-advised fund. You usually need $5,000 to $10,000 to open a donor-advised fund at a brokerage firm, mutual fund company, or community foundation. You can take a charitable deduction when you give the shares to the donor-advised fund, but you have unlimited time to decide which charities to support. 

And if you’re not sure which charity should receive your appreciated stock, you need not decide now. Donating stock to a donor-advised fund allows you to take a deduction for the current tax year and then support as many charities as you would like over time, by recommending grants on the timetable that makes the most sense for you.

Contact Clergy Financial Resources to help you with the next steps.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

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