Is it better to give stock or cash to a charity? Do I need to
do anything special to give stock?
The best strategy depends on whether the stock has increased or
decreased in value since you bought it and whether you've owned it
for more than a year. Here are five things to know about giving
stock to charity to get the maximum tax break.
1. Giving appreciated stock you've held for more than a
year is better than giving cash.
If you donate stock that has increased in value since you bought it
more than a year ago - and if you itemize deductions -- you can
take a charitable deduction for the stock's fair market value on
the day you give it away. You'll also avoid capital-gains taxes on
the increase in value over time, which you would have had to pay if
you sold the stock then gave the charity the cash proceeds. You can
deduct the fair market value only if you hold the stock for more
than a year before giving it away. If you've held it for less than
a year, your deduction is limited to your cost basis -- what you
paid for the stock -- not the current value.
2. If it's a losing stock, it's better to sell it and give
If the stock has lost value, it's better to sell the stock first
and give the cash to the charity. You'll still be able to deduct
your charitable donation if you itemize, but you'll also be able to
take a capital loss when you sell the investment.
3. Ask the charity and brokerage firm about the procedure
and time frame for giving stock.
Most banks and brokerage firms require a letter of instruction or
letter of authorization to transfer the shares to charity, and a
mutual fund company may have a special form. It's a good idea to
start the process at least a week before December 31, so the
transfer has plenty of time to be completed during the holidays.
Jane Wilton, general counsel for the New York Community Trust,
recommends transferring mutual fund shares a few weeks earlier.
"Some mutual fund companies are faster than others," she says.
4. You can buy extra time with a donor-advised
If you'd like to transfer shares when the value reaches a certain
level but want extra time to decide which charity to support, you
could give the stock to a donor-advised fund. You usually need
$5,000 to $10,000 to open a donor-advised fund at a brokerage firm,
mutual fund company or community foundation. You can take a
charitable deduction when you give the shares to the donor-advised
fund, but you have unlimited time to decide which charities to
support. The donor-advised fund may also accept privately held
stock, real estate and other complex investments. See
Donor-Advised Funds: Tax Break Now, Charity
for more information.
5. The timing may be tricky if you donate your required
minimum distribution from a retirement account.
If you'd like to transfer your RMD to charity, delay taking your
RMD until Congress passes the law allowing it for 2015. For the
past few years, people over age 70½ have been able to transfer up
to $100,000 from their IRAs to charity tax-free. The gift counts as
their required minimum distribution for the year, but it is not
included in their adjusted gross income. This can be a great way to
avoid having to pay taxes on your RMD if you want to support a
charity, and it gives you a tax break even if you don't itemize
But Congress usually waits until the end of the year to extend
the law. To count for the tax break, you generally need to transfer
the money directly from the IRA to the charity, and you can't touch
it first. So it's a good idea to wait until Congress approves the
law for 2015 before taking your RMD. But if Congress still hasn't
acted by mid December, ask your IRA administrator how long you can
wait and still meet your RMD deadline. If you don't take the money
by December 31, you may have to pay a penalty of 50% of the amount
you should have taken but didn't. See
Tax-Free Transfers From IRAs to Charity Are Still
for more information.