overview

• With a donation of securities, capital gains tax no longer applies, allowing you to maximize your giving. You can donate up to 37% more. 

• A donation of appreciated stocks through Cocatalyst is the most financially efficient way to donate and can be done in 5 minutes or less. 

• Cocatalyst makes the process of donating to charity much easier, since it eliminates the paperwork for the contributor and also for the 501(c)(3) public charities. In such a way that the two entities only have to worry about their main activities and not the tired process that involves manually donating to charity.

As a donor, you always want to make sure that your gift is having the most impact on the cause or group that you care about. A low effort way to make your donation have more impact is to give more through tax-efficient strategy.  A little known secret in the financial planning industry is that giving your appreciated assets is far more effective than cash. Most donors pay by cash, credit card, or check. However, giving with stock, such as Apple or Tesla shares, is a great way to benefit charities that help people in need, with the added advantage of a tax-deduction and removal of future capital gains.

Tax Benefits of Stock Giving to Charitable Non-profits

When you donate stocks to a charity, you are giving more in terms of value, without paying more out of pocket. Giving appreciated stock is up to 37% more tax-efficient than cash. The extra bonus comes from the capital gains tax that you would have had to pay if you sold the stock now or in the future. When you donate stocks directly to a non-profit, neither you nor the charity will have to pay capital gains tax on such investments. Also, you will still receive the tax receipt for the fair market value at the time of donation. 

For instance, let’s assume your state and federal tax rate on capital gains is 35%, and you want to donate $10,000. If you acquired Apple stock at $100, and it’s now trading at $250, you could donate to the charity 40 shares to reach your $10,000 goal. However, if you sold the stock either now or in the future, those Apple shares would only be worth $7,780. You would have to sell 9 additional shares to make up the difference. Whether you donate with stock or cash, your deduction will still be $10,000 on your tax returns. However, it’s clear that donating with stock increases your total tax efficiency and allows you to make more impact.

If the stocks you decide to donate depreciate over time, you are better off selling it and donating the money from the sales. With that, you will be able to take advantage of the deduction of capital loss tax and also benefit from tax deductions based on donations to charity.

Let say you want you bought 50 shares of Tesla, at $300 each, which is now trading at $1,000. You want to give $50,000 to Worldvision. If you give the 50 shares stock through Cocatalyst, and on the same day buy 50 new shares of Tesla, you offset your entire gains. If the shares drop to $700/share ($35,000 in total value), you can take a $15,000 loss deduction, versus a $20,000 taxable income if you never made the stock donation. If the shares appreciated to $1,200 ($60,000 in total value), your taxable gain would only be $10,000, rather than $45,000 originally.

How to Transfer Stock to Charity

Want to help a charity but not sure how to donate your stock? It depends on a few things. The first step to take is to figure out the stocks you want to donate. Your decision can be based on inclination or taxes. Then you can either decide to donate through the smart simple method or the rigorous manual method.

The Easy Way to Donate Stock

1. You can start the donation process by visiting www.cocatalyst.org/start-donation and fill out the webform.  We will then send you an e-signature to confirm the request.

2. After that, we work with the broker back office to liquidate the shares and send the cash directly to the charity. We also will issue a tax receipt for you.

This saves tremendous time, and you avoid the paperwork and all the stress associated with the manual process of stock giving. This also ensures that the charity organization receives the funds sooner. The goal is to help optimize donations to make the most impact.

How to Manually Give stock

The manual method involves a lot of paperwork, form-filling, and follow-up activities by the donor and the charity organization.

1. First, you need to contact the charity organization’s giving team and ask if they accept stock donations. If they do, they will need to provide you their account information and brokerage numbers.

2. Next, you need to contact your broker for their stock donation process forms. The forms and documentation required can vary, so make sure to ask follow up questions to ensure you understand the full process. For instance, some brokers will require you to get a Medallion Stamp Guarantee from a licensed individual.

3. Print out the forms to your broker gave you to do a partial transfer out to a charitable account. There might be several forms, and each needs to be printed out and filled out in black ink pen. This might involve forth and back confirmation of the charity’s details to ensure there are no errors.

4. Fax the forms into the number provided by your broker. If the broker gives you a confirmation number, record that so you can reference the transaction in case any issues appear later.

5. Notify the charity you started the donation.

6. Follow up with the charity daily to ensure they received it. Donors should follow up daily to ensure they get the right fair market value for their donated stock. Otherwise, if the share price drops, you could get a tax receipt for less than the value you gave for.

You will need to be fully involved in the process with adequate follow-ups to ensure that your donation was received. The non-profit organization might not provide you the right deduction value for the shares if they were not on staying on top of the transfer process. This can harm your total tax benefit if the fair market value of the stock goes down from the date your actual transfer. 

When to do Stock Donations for Tax

There are certain events with larger implications where a stock donation should be considered. In the following instances, it’s worth thinking through, working with your financial planner or CPA to evaluate if stock giving makes sense.

Year-end gifts

For you to get a reduction for an existing tax year, the donation of the stock must be completed on or before the 31st of December of that year. The tax records will only acknowledge the date your donation was received by the non-profit, not the date you initiated the transfer. You need to make plans ahead for the year-end stock donations to meet-up with the tax year. It might require more time when you transfer stocks from private organizations compared to a transfer from a public organization. For year-end donations, timing is essential.

Rebalancing your portfolio

If a review of your portfolio reflects a need to reevaluate gains from your investments, stock donations to charity can be a more rewarding option. For instance, if you are trying to have a portfolio of 70% stock and 30% bonds; but already have your portfolio drifting to 76% stock and 24% bonds, you will need to rebalance your portfolio and sell a percentage of your holdings. When you sell stocks, there will be capital gains, especially if the asset can be taxed. But if you decide to donate such an asset from your portfolio to charity, it will improve your portfolio's tax-efficiency. You will not just be helping a non-profit but also improving the overall balance of your portfolio. 

Whenever you hold a stock for more than a year

When you donate a stock that has increased in value for more than a year, you are eligible for a charitable deduction for the stock's fair market value starting from the day you completed the donation process. This will only be applicable if you have the stock for more than a year before donating it to charity. If you do not hold the stock for more than a year before donating, the deduction made on taxable income will be based on the stock's value when you first got it and not the current appreciated value. Timing is of the essence when donating stocks to charity.

Celebrities Charitably Donating Stocks

Among some of the notable persons giving stocks to charity is Bill Gates. He recently donated 64 million Microsoft shares to his foundation. The donation denotes about five percent of his fortune at the time. That act of good deed reduced his stake in Microsoft, and it was not the first time he was donating in the form of shares. Bill and Melinda Gates had donated $16 billion worth of Microsoft shares in 1999, and the next year donated another $5.1 billion. With such donations, the Gates Foundation has grown to become the world's largest private charity organization.

Like Bill and Melinda Gates, Warren Buffett promised to donate $37 billion in stock to the Gates Foundation in 2006. Ever since Buffett has donated some of his company's shares to the foundation. He is also known to have donated stock to other non-profit organizations like the foundation named after his late first wife and other charitable organizations run by his children. Like Bill Gates, and Warren Buffet, more celebrities, and other philanthropic persons are keying into the possibilities of donating stocks to charity for a greater impact.

Conclusion

Donating a good stock might not be the first thing to cross your mind when planning to give to charity. However, giving to a non-profit organization with stock ensures you maximize your impact through tax efficiency. If you are going to donate stocks, you have to do it the right way for you to make it the smoothest and easy way possible. Cocatalyst streamlines stock gifts and can take the hassle out of taking advantage of the tax strategy, visit www.cocatalyst.org/start-donation today to start your donation.