Donating stocks instead of cash to a nonprofit can be a smart way to increase the value of your gift while also benefiting the charity. There are two potential tax benefits associated with donating stocks. Firstly, you can avoid paying capital gains tax, and secondly, you can maximize your charitable deduction - but only if you meet certain conditions.
If you're planning to donate appreciated stock to a qualified charity, you might be able to avoid paying capital gains tax and increase the value of your gift. However, this only applies if the stock has appreciated in value since you purchased it. On the other hand, if the stock has lost value, it's better to sell it and realize the capital loss before making a donation with the proceeds. Keep in mind that in this case, you won't be able to avoid paying capital gains tax.
Second, to claim the maximum deduction for donating stock to charity, you need to have owned the stock for more than one year. If you have owned the stock for more than one year it is considered a long-term asset, which generally allows you to deduct the entire fair market value of the donation from your taxes. However, if you held the stock for one year or less, it's considered a short-term holding and you would only be able to deduct the purchase price, not the appreciated fair market value. This is in accordance with current tax laws.
You can only benefit from the tax deduction if you don't take the standard deduction but instead itemize. For the tax year 2024, the standard deduction is $14,600 for single filers and $29,200 for those who file jointly. If the total of your deductions is lower than this threshold, the charitable contribution won't help lower your tax bill. It's important to note that the deduction is limited to 30% of your adjusted gross income. If you can't use the entire deduction in one year, you can carry over the unused portions for up to five years.
Click here to utilize the Fidelity calculator for donating appreciated stock to a charity. Attached is a PDF
with additional information on gifting appreciated stock.
*We strongly consult with a qualified tax advisor or financial planner who can provide you with personalized guidance tailored to your specific situation.