Donating stock to charity: A win for both you & your cause

Many people like to give cash to their favorite causes, but can you also donate stock to charity? Yes, you can donate stock to almost any 501(c)(3) charity in the U.S., including schools, hospitals, churches and most nonprofit organizations.

Not only can your financial support make a significant impact in the lives of others and help further the causes close to your heart, you may receive tax benefits as an added bonus.

Check out the benefits of donating stock to charity, how this unique form of charitable giving works, and how you can start giving back to the organizations you care about.

Donating stock to your favorite charity can be more beneficial than donating cash, but this form of charitable giving may not be right for everyone. Before deciding to donate your stock to your favorite cause, consider these points:

• You can make a meaningful difference in furthering a cause. Donating your stock to charity can be financially motivated, but one of the greatest benefits is knowing that your money can help others.

• You can avoid capital gains tax. You don't pay capital gains tax on stock donations that would otherwise be owed if you sold the stock yourself. This also means donating stock to charity can be more advantageous to the organization and you than donating cash.

• It provides tax-efficient benefits. When an appreciated security, such as a stock, is held for at least one year and is donated to a charitable organization, the fair market value of the stock may be itemized as an income tax deduction. So, donating stock to charity not only saves you from paying capital gains, it can potentially reduce your taxable income.

• You get lower tax deductions compared to cash. Charitable cash contributions generally have a limit on deductions of 60% of adjusted gross income for taxpayers itemizing their taxes. However, stock contributions are generally limited to 30%.

• You lose control over the assets. Although you, as the donor, can choose how and where a charitable stock donation is made, the sponsoring organization has legal control over the assets once you've contributed them.

1. Confirm that your chosen charity has a brokerage account that can receive a gifted stock. Many charities provide this information on their websites.

2. Once you have the right details, such as their brokerage account number, you can provide the information to your broker to initiate the transfer. Keep in mind that brokerage firms tend to be extremely busy with tax donations and other end-of-year items every December, so it's wise to get started before then, if possible. It's also important to remember to report your stock donation, which is considered a non-cash charitable contribution, to the IRS with Form 8283.

3. You should report the donation for the tax year in which it was made.

Aside from a direct donation of stock to a charity, you can use a donor-advised fund, which is a type of managed fund maintained by a 501(c)(3) organization known as a sponsoring organization. You can contribute cash to a donor-advised fund, or you can contribute other types of assets, such as shares of publicly- and non-publicly traded stock, bonds or mutual funds.

As a donor, you can recommend how to invest the assets and where to donate them, plus you can get a tax deduction for making contributions to the donor-advised fund. Keep in mind that the sponsoring organization manages the account, so they have legal control over the assets once you've contributed them to the fund.

• Maximum tax deduction: With stock donations to charity, you generally can deduct up to 30% of your adjusted gross income (AGI) and avoid paying capital gains tax on shares that have appreciated in value.

• Limits and carryover for donation: If you donate more than the standard 30% of AGI limit, you can carry over the excess contribution for up to five tax years.

• Higher limits for some organizations: Stock donations made to certain qualifying organizations, such as churches, hospitals, and some educational organizations, may be deducted up to a 50% of AGI limit.

By donating your stock to a charity, you can help others while helping yourself thanks to the tax deduction you may receive after donating. Like other forms of charitable giving, donating stock to charity has certain rules and limitations.

For help with navigating charitable donations, connect with a local financial advisor to explore the different ways to make the most impact with your savings and the best methods for doing so.