Effective charitable giving: What you should know about the benefits of donating stock

Uncertainty often causes people to delay their charitable giving decisions. And, in the wake of the recent election, many of us are wondering how markets will perform and what the U.S. economy will look like in 2025. But when it comes to your support for the causes that mean the most to you, consider focusing less on what's unknown and more on what we can be sure about.

For example, charitable gifts can go far beyond cash. Donating stock directly to charity is one of the most tax-smart ways to give in any economic climate. Why?

• Remove a tax liability from your portfolio. Donating appreciated stock to charity eliminates any potential capital gains tax liability from the appreciation in the stock. Federal capital gains taxes can be as high as 20 percent. If you factor in the 3.8 percent Medicare tax on investment income, you could be on the hook for up to 23.8 percent in federal taxes (and possibly state capital gains tax in some states) if you choose to sell your stock and donate the cash proceeds.
• If you itemize, there’s an immediate extra tax benefit for you. In fact, it’s one of the most generous deductions in the current U.S. tax code. As long as the donation is to a qualified charity, you can take a tax deduction for the full fair market value of the donated shares (up to 30 percent of your adjusted gross income), regardless of what you originally paid for them.
• Donating stock can increase the impact of your gift. When you give appreciated stocks directly to a qualified charity, your gift can be significantly larger because you avoid the taxes you would incur from selling and donating the cash. This means more support for the Drexel department or program that you choose.
• You may be able to find a better use for your cash. Consider this strategy:  Donate appreciated stock from your portfolio and then buy shares of the same stock that you gifted. Purchasing it at the current, higher cost basis will lower your potential tax liability down the road.

When it comes to making a difference, remember that what you give may be just as important as how much you give, and calendar year-end is a critical time to examine your charitable giving options. Donating stock is tax-savvy philanthropy and a fairly simple process.

For stock transfer information or answers to your questions, contact David Toll, JD, senior associate vice president, Drexel University Office of Gift Planning, at 215.895.1882 or giftplanning@drexel.edu.