Thinking of donating stock as a charitable giving option? 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 a few things to know about giving stock to a charity, like Drexel University, 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 on your income tax return, 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. (Keep in mind - 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 the cash.
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 your brokerage firm about the procedure and time frame for giving stock.
Most brokerage firms require a 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 for gifts of stock, and a few weeks before year-end for mutual funds so the transfer has plenty of time to be completed for that calendar year.
4. You can buy extra time with a donor-advised fund.
If you’d like to transfer shares when the value reaches a certain level, consider establishing a Drexel Donor Advised Fund (DAF). You can take an immediate charitable deduction when you give the shares to the DAF, but you have unlimited time to decide which charities to support. In addition to supporting Drexel University's schools and programs, your DAF will allow you to recommend other charities to receive gifts, so this is a convenient, cost effective giving option - particularly when you are donating appreciated assets, which might otherwise be difficult or inconvenient to split between your charities.
Questions about the benefits of donating appreciated securities? Contact David Toll, JS, senior associate vice president, Gift Planning at (215) 895-1882 or giftplanning@drexel.edu