5 Steps to Help You Accomplish Your Tax Planning and Philanthropic Goals
Here at Resolute, we talk about charitable giving often. One of our greatest convictions is to help our clients understand the value they can provide by sharing their wealth with those closest to them, of course, but also with causes and organizations, they are passionate about.
If it’s a priority for you to create impact beyond yourself, you should know that there are a host of ways – beyond cash – to donate to your favorite non-profit organizations. And, gifting shares of stock is one of the smartest ways to do it.
Why You Should Consider Donating Shares of Stock
Gifting shares of stock is one of the most tax-savvy methods for donating to a 501(c)(3) organization – and it allows more of your dollars to benefit charity, too. Your gift goes further than if you simply sold an appreciated stock and donated the profits. Why? Well, gifting appreciated security instead of selling it for a profit allows you to avoid capital gains tax on the appreciation, plus you may receive a tax deduction on the value of donated shares. It’s a win-win situation – you enjoy tax advantages, and you can maximize your philanthropic impact.
How to Gift Shares of Stock to Charity
If you’d like to donate stock, you’ll do so by completing a stock transfer form from your brokerage – that is, the financial institution that manages your stock assets. Here’s a step-by-step breakdown of how this straightforward process works:
Step 1: Decide Which Shares You’d Like to Donate
You have options when it comes to donating securities, including publicly traded stocks, bonds, ETFs, and mutual funds. When you’ve chosen which shares you’ll be donating from your portfolio, you’ll need to know the following:
- The name of the stock
- The ticker symbol
- How many shares do you wish to donate
- Potentially, the tax lot you’d like to donate
This information will be important as you move forward in the process.
Step 2: Get the Charitable Organization’s Account Information
You’ll need very specific information from your preferred non-profit in order to move forward. If you have an existing relationship with a gift officer at the organization, they can be helpful. Otherwise, you can typically find general contact information on the organization’s website.
- The organization’s full legal name
- Their Employer Identification Number (EIN) issued by the IRS
- The name and DTC number of the receiving institution (i.e. the organization’s brokerage firm)
- Their account number
Once you secure these necessary details, you can move forward with your transaction.
Step 3: Complete and Submit Your Brokerage’s Appropriate Stock Donation Forms
Your brokerage, as the manager of your stock assets, bears the responsibility for transferring your chosen shares to the charitable organization. It can be difficult to reach someone to speak to at the larger brokerages, but you can usually find stock donation forms in your online account portal or on the brokerage website.
You’ll probably be directed to complete the forms in black ink if you’re writing by hand, and you’ll need the information you gathered in Steps 1 and 2 above. You’ll submit the forms by mail to the brokerage (or online if they offer an e-signing option). Keep any confirmation numbers you receive for your records.
An important note: In order to be eligible for a tax deduction in a particular year you’ll need to itemize instead of taking the standard deduction. You’ll also need to complete your stock donation by December 31 of the tax year in question. This does NOT mean filling out your donation form or initiating your transfer request by that date. Rather, the gift must be recorded by the charity by December 31.
Step 4: Confirm Your Donation Was Received
It’s best to let a non-profit organization know that a gift is coming so there won’t be any confusion upon transfer. Once the transaction processes, you should get a receipt from the organization that specifies important details like the date of transfer and the value of the donation, and you’ll want this for your records.
Step 5: Report the Stock Gift When Filing Your Taxes
To report your donation to the IRS, you’ll need to use Form 8283 for non-cash charitable contributions. You’ll file it along with your tax return for the tax year in which the donation was received. Generally, you’ll receive a deduction for the full fair market value of the shares you gifted – up to 30% of your adjusted gross income.
Maintaining Ownership and Still Receiving Tax Advantages
An important strategic note: If you’re giving shares of stock that you would still like to own, you can gift shares and then write a check to your investment account to purchase the same amount of shares you just gifted. The new shares will have a new cost basis and you can avoid capital gains taxes.
Making Gifts During Peak Income Earning Years
The tax savings that can be generated by gifting appreciated shares in your peak income-earning years provides an opportunity to give more. You could increase your donation by the taxes you are saving or take it a step further and potentially establish a Donor Advised Fund. If you are nearing retirement, these strategies could fit into your longer-term charitable giving. These decisions should be coordinated with the help of a tax professional to look at pre-retirement vs post-retirement tax rates.
Are You Ready to Gift Shares of Stock to Charity?
Donating long-term appreciated securities to charity is an excellent strategy to increase your charitable giving and enjoy tax advantages at the same time. If you’d like to discuss how you can best achieve your charitable giving goals – including gifting shares of appreciated stock – please give us a call today. Charitable giving can be an integral component of your wealth management plan, allowing you to achieve the meaningful impact you desire.