Things to know about donating stocks to charity

They say giving is better than receiving. If you plan adequately, it is possible to give and have enough let over. Typically when you think of making a donation to charity credit cards, writing a cheque or giving cash is what comes to mind first. However, for donors, making charitable donations is an efficient way to help the needy and support a good cause while receiving tax benefits. Below is what you should know about making a generous donation via stocks.

Your stock donation can go a long way than cash

Appreciated stock donations to charity can have more impact on your income than you think. The reason behind it is because you avoid hefty fines such as capital gains. However, you can only enjoy the deduction if you hold the stock for more than a year before donating it to your prefered charity. However, if held for less than a year, your deductions are limited to the original value, not the current value.

If it’s a depreciating stock, sell and give it as cash

If the stock depreciates, it would be best to sell and give money to charity. Giving cash will enable you to subtract your charitable donation if your standard deductions exceed your charitable contributions. You will also be able to offset current and future capital gains.

When you sell the investment, ask about the procedure and timeline for giving stock from the charity and brokerage.

Brokerage firms and banks require an instruction or authorization letter to transfer shares to charity. However, mutual fund companies might require a special note. As per the financial industry regulatory authority, it takes about two weeks to complete a transfer. So, it is advisable to start the process a week before. Then a few days after submitting the transfer request, contact your brokerage firm to check your transfer status.

You can buy more time with a donor-advised fund

To open a donor-advised fund at a brokerage companies charge about $5000 to $10000. However, if you want to transfer shares when they appreciate, you could give them to a donor-advised fund. Additionally, you should opt for a charitable deduction and have plenty of time to decide which charity to support. The donor-advised fund also accepts real estate, held stock, and other investments.

If you donate from the required minimum distribution, the timing might be tricky

For the past few years, people over 70 years have transferred up to $100,000. They have been doing this from their retirement accounts to charities tax-free. This counts as their RMD for the year but is not included in their adjusted gross income. This is an easy way to avoid paying taxes on your RMD if you want to support charity.

Suppose you are holding securities with a loss; it’s better to sell. If you sell, you can take the capital loss for tax purposes and donate the cash. A cost-effective way is for you to give appreciating collateral to help charities of your choice and gain from it.

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