Donate Shares of Stock and Get Double Tax Savings!

December 27, 2007 By Matthew Paulson

December is the single biggest month for charities and other non-profit organizations. People are looking for ways to lower some of their taxes and the spirit of Christmas is upon us—and that means donations, lots of them. Some charities estimate that they make 20% of their annual income in the month of December alone. If the holiday season has moved you to make a charitable donation, there might be a way to give away the same amount of money, but have an even better tax benefit.

Most people write a check to their favorite charity, take the tax deduction, and call it good. This is not the best way to go if you have any sort of investments. You are actually much better off to make a donation of mutual funds or stock to your non-profit organization of choice. By donating an investment instead of stock, you will not only get the standard tax donation for donating to a non-profit organization, but your investment will also be free of tax on any capital gains that you might have had through the investment.

For the sake of this discussion, let’s say that you purchased $500 of stock 2 years ago, and now that stock was worth $1,000. If you donated $1,000 of cash, you might get $250 back from the tax deduction you’ll receive. If you donate $1,000 of stock, you’ll $325 back in the form of the tax deductions and the savings on capital gains. You’ll still be giving the same amount of money, but you’ll get a much better deal when it comes to your taxes.

Most charities will be happy to accept your stock, but some might not be equipped organizationally to receive stock donations. These will be smaller charities that don’t have a large infrastructure in place. In that case, you can just go ahead and pay cash as you normally would.

The charity will then be able to take that investment that you have, keep it and let it grow money, or sell the investment and make use of the cash to help pay for their operating expenses. It might be a few pages of paperwork to make the donation happen, but it’s well worth it when it comes to your taxes. In order to make this all happen, you can talk to your investment firm and they should have a process for transferring your stock ownership over to your favorite charity.

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