The holiday season is a time filled with the spirit of giving. According to a study from Indiana University’s Center on Philanthropy, 24% of total donations are made in the small window between Thanksgiving and New Year’s Day. The annual surge in giving has led nonprofits to nickname this period as the “Giving Season.”
But not all charitable giving is created equal. One of the most efficient, and underutilized, methods of donation is gifting appreciated stock rather than cash. Investors who wish to donate funds often sell off a portion of holdings to donate in cash, leaving him/her liable for the tax on any capital gains. By gifting the appreciated stock directly to charity, however, the individual can simultaneously increase the total amount received by the charity of their choice and decrease the tax liability. Instead of paying the amount of capital gains tax to the government and the remainder to the charity, gifting appreciated stock directly allows the donor to give the whole lump sum to the cause of his/her choice.
There are a couple caveats here. First, only give in this manner if the stock has appreciated. Converting securities that have declined in value to cash before donating them is preferable because, in addition to being able to deduct the amount of the charitable donation, you will realize a capital loss, which will offset any realized capital gains. Second, you can only deduct the full value of the appreciated stock if you have held it for more than a year. This is because the benefits of gifting appreciated stock are only applicable to long-term capital gains. Therefore, if you have not held the security for more than a year, which marks the line between short-term and long-term for capital gains purposes, you will not derive the benefit.
Finally, gifting a security as opposed to cash may require some extra time and coordination between you and your brokerage firm. Due to the busy holiday season, it is probably wise for transfers to be initiated at least a week before December 31st in order to ensure that the transfer will be completed prior to year-end.
For more information on the many worthy causes available, visit Charity Navigator.