Supporting charitable causes is often driven by passion, not tax strategy. But if you’re looking to make a meaningful impact while optimizing your tax return, donating long-term appreciated stock instead of cash can offer significant financial advantages. Why Stock Donations Offer More Than Just a Deduction
When you donate publicly traded stock you’ve held for over a year, it qualifies as long-term capital gains property. This opens the door to two major tax benefits: Double Tax Advantage
- Charitable Deduction: If you itemize, you can deduct the stock’s full fair market value.
- Capital Gains Exclusion: You avoid paying capital gains tax on the appreciation.
This strategy is especially powerful for those subject to the 3.8% Net Investment Income Tax (NIIT) or the 20% top long-term capital gains rate. Real-World Example: How the Numbers Work
Imagine you donate stock worth $15,000 that you originally purchased for $5,000. Your ordinary income tax rate is 37%, and your long-term capital gains rate is 20%.
- Selling the Stock: You’d owe $2,000 in capital gains tax and $380 in NIIT.
- Donating the Stock: You avoid those taxes and gain a $15,000 deduction, saving $7,930 in total federal taxes.
- Donating Cash Instead: You’d only save $5,550.
Clearly, donating appreciated stock can yield significantly higher tax savings. Key Considerations Before Donating Stock
1. Itemized vs. Standard Deduction
You’ll only benefit from the charitable deduction if your itemized deductions exceed the standard deduction. For 2025, the thresholds are:
- $15,750 for singles and married filing separately
- $23,625 for heads of household
- $31,500 for married filing jointly
2. Deduction Limits for Stock Donations
Donations of appreciated stock are subject to stricter limits:
- Public Charities: 30% of your adjusted gross income
- Private Foundations: 20% of your adjusted gross income
By contrast, cash donations allow for higher limits—60% and 30%, respectively.
3. Avoid Donating Depreciated Stock
If your stock is worth less than your purchase price, sell it first to claim the loss. Then donate the cash proceeds to maximize your tax benefit. A Smart Year-End Tax Strategy
If you plan to itemize deductions on your 2025 return, consider making charitable gifts before December 31. Donating highly appreciated stock you’ve been reluctant to sell due to tax implications can be a savvy move to reduce your liability.
Want to explore how this strategy fits into your financial plan? Reach out today to learn more about minimizing capital gains and maximizing your charitable impact.
Let me know if you’d like this formatted as HTML for direct WordPress input or if you want help creating a featured image or social preview!