How To Donate Stocks and Mutual Funds - A Better Option Over Cash Donations?

Is it time to make your yearly donation to your favorite charity?  Have you ever considered donating your securities (i.e. stocks and mutual funds) as an alternative to cash. Many charities accept securities as a donation, and there might be additional tax advantages associated with it.

So, when is it better to donate securities over cash?  

Well, that all depends on whether you have gained or lost money on the investments.

If your securities have increased in value since you purchased it, it is better to donate the securities to charity.

Benefits When Securities Have Increased In Value

1. When you donate your securities that has appreciated in value, you do not have to pay federal or state tax on the capital gains.
2. You deduct the full market value of the securities from your income taxes. **Important** In order to take advantage of this benefit, appreciated securities must be held for over one year. Please note that tax laws consistently change, and it is advised to check with your tax advisor.
3. You are making a donation that is lower than what you initially paid for.

If your securities have decreased in value since you purchased it, it is better to sell the securities first and then donate the cash. 

Benefits When Securities Have Decreased In Value

1. When you sell securities at a loss, you'll be able to utilize the loss to offset capital gains or deduct the capital loss versus income up to $3,000.  Please note that tax laws constantly change, and it is advised to check with your tax advisor.
2. And you will still be able to deduct the cash donation.

The Math When Securities Have Increased In Value

Here is an example of how you can benefit from donating security instead of cash.

As you can see, in this example, you save over $1,000 in taxes by donating the security directly instead of selling the security and then donating the remaining amount net of taxes in cash.

Instructions On Donating Securities

1. You must be itemizing your tax deductions to take advantage of the benefit
2. Again, securities must be held over a year
3. Make sure the charity is a registered 501(c)(3) charity or qualified religious organization that can lawfully accept your donation and from which you can get a tax deduction
4. Contact your charity for instruction on donating your securities.
5. Please contact your financial or tax adviser, who can assist you in evaluating the tax advantages available to you.

Examples Of Charities Willing To Accept Securities Donation

1. American Red Cross (www.redcross.org/donate/donatestock.html)
2. Global Fund for Women (www.globalfundforwomen.org/cms/content/view/215/208/)
3. Save the children fund (//www.savethechildren.org/donate/stock.html)
4. Emergency Family Assistance Association (www.efaa.org/pages/donation_stock.htm)
5. North Shore Animal League America (www.nsalamerica.org/donate/donate_stock.html) 

Additional Information About Contributions From The IRS

“The amount of your deduction is limited to 50% of your adjusted gross income, and may be limited to 30% or 20% of your adjusted gross income, depending on the type of property you give and the type of organization you give it to.” See Publication 526 Limits on Deductions for more information.

Resources

1. Section 501(c)(3) - Charitable institution of the IRS Tax Code
2. Publication 550 - Investment Income and Expenses
3. Publication 526 - Charitable Contributions Capital Gain Property
4. Form 8283 - Noncash Charitable Contributions
5. Charity Navigator