How to donate stocks and mutual funds to charity
(Read article summary)Here are some tips on how to donate stocks and mutual funds to charity.
IRS tax regulations allow you to donate stocks and mutual funds to non-profit organizations. Understanding a few tax implications regarding your contribution will help add value to your donation. However, many people think that donating the stock and selling the stock to give the money to a charity yields the exact same results. However, by donating the stocks with a capital gain, both the donor and the recipient will benefit more if the stocks are donated instead of selling them and donating the cash.
A Brief Introduction to Capital Gains:
When you sell a stock or mutual fund for more than you paid for it, the IRS will require you to pay taxes on those gains. For example, if you purchase something for $100 and it grows to be worth $110, when you take out the $110 you will be required to pay capital gains taxes on $10.
You will need to learn about mutual fund capital gains in order to fully understand the benefits of donating stocks instead of cash.
Why Donate A Stock or Mutual Fund With A Gain To Charity?
When you donate a stock to a charity, you give them the actual stocks.
Thus, using the illustration above, you would give the charity $110 worth of stock. The IRS would allow you to claim a charitable donation for $110. The charity can then sell the stock for $110 and they end up with $110.
Disadvantages of Selling a Stock or Mutual Fund and Donating the Money to a Charity
However, if you sell your stock, you will pay a capital gains tax. If you sell your $110 worth of stocks, then you would need to pay 30% in taxes (purely for illustrative purposes – visit this to find out your exact capital gains tax rates) on your $10 capital gain. Once you pay $3 in capital gains you now only have $107 to donate to the charity. Perhaps you still want to donate $110 so you would need to actually donate $113 of your own money in order for the charity to get $110.
