3 Reasons to Give Away Appreciated Stock

By Tim Hilterman, CFP, CAP, Investment Advisor Representative

July 12, 2021

As the stock market continues to recover, perhaps you’ve seen significant gains in your portfolio, or maybe you invested in a stock that skyrocketed and now your portfolio is out of balance. If you have a heart for non-profits, we have some good news: donating stock directly to charity is one of the most tax-efficient ways to give. Here are three reasons why:

  1. Receive a double tax benefit -- When you donate stock directly to a charity, you receive a deduction off your income for the amount (fair market value) donated, the same way you would receive a deduction by making a cash donation. However, because you’re giving away stock that has gone up in value, you also avoid capital gains tax. This could increase the size of your donation by up to 20%!
  2. Potentially avoid future capital gains -- You may have a favorite stock that you would like to hold for a very long time. Strong performance in that stock may increase your desire to hold the stock, but the higher the stock goes the larger your potential tax burden becomes. Consider donating a portion of the appreciated stock and then purchasing new shares with cash. This resets your cost basis and reduces your future capital gains.
  3. Keep your portfolio balanced -- If one of your portfolio positions has increased more than the others, choosing to donate some of that security can help it from becoming a concentrated position that adds risk to your investments. Utilizing a donation plan can put your capital gains to work and keep your portfolio in check.

The chart above shows the tax savings of donating $10,000 of an appreciated security, $10,000 in cash, or selling an appreciated security then donating cash. This assumes the security was originally purchased for $2,000 and is now worth $10,000.

Don’t have a particular non-profit in mind? Don’t worry: you can still take advantage of this tax-saving strategy by donating your appreciated stock to a Donor Advised Fund. This will allow you to realize the tax savings and you remain in control of how those funds are donated in the future.

There are some nuances to be aware of when considering this strategy. For example, if your donations along with other allowable deductions don’t put you over the standard deduction (for 2021: 12,550 for single filers; 25,100 for married filing jointly) this may not carry the same advantages. As in most financial decisions, this choice should be made while considering how it fits into your complete financial plan. Please contact us if we can help you decide if this is right for you.

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