As the year draws to a close and the holiday season inspires us to give back, many clients are finalizing their charitable contributions before the December 31st tax deadline. While writing a check is the traditional approach, it's not always the most tax-efficient option, especially in the midst of year-end tax strategy implementation.
For investors holding appreciated stocks, real estate, or other investments, donating these assets directly to a nonprofit can provide significant tax advantages while maximizing the impact of their gift. While the window is closing to facilitate this strategy for 2025, the same tax benefits should remain for you to use in future years.
Understanding the Tax Benefits
Donating appreciated assets provides several tax advantages that differ from cash donations. Keep in mind that any tax deductions for charitable contributions can occur when two important pieces are in place:
- Filing using itemized deductions on the tax return. AND
- Have enough other deductions (mortgage interest, medical, etc), or make large enough charitable gifts to exceed the standard deduction.
Difference in Stock vs. Cash Donation - Capital Gains Tax
When you sell an appreciated asset, you typically owe capital gains tax on the profit. Capital gains rates are 15%-20% for assets held for longer than a year, and it is possible to create an additional Net Investment Tax of 3.8% depending on your Modified Adjusted Gross Income. By donating the asset directly to a qualified 501(c)(3) organization instead of selling it first, you would be in a better position to avoid these taxes.
Example: Let's say you purchased stock for $10,000 that's now worth $50,000, and you also file jointly with taxable income over $600,050. If you sold it, you could owe approximately $8,000 in capital gains taxes (20% of the $40,000 gain), leaving you with $42,000 to donate. By donating the stock directly, the full $50,000 would go to the nonprofit.
Tax Deduction for the Full Fair Market Value
When you donate appreciated assets you have held for more than one year, it is possible to deduct the current fair market value, not just what you originally paid. This means you get credit for appreciation you never paid taxes on.
Using the same example above, donating stock worth $50,000 provides a $50,000 charitable deduction, even though you may have only initially invested $10,000.
A note on short-term capital gains...if an asset greatly increased in value within the year, and it is sold before holding it for a whole year, the gains on the asset would be taxed as ordinary income (like your wages, salary, etc) using the regular federal income tax brackets for your ordinary income. In addition, the tax deduction for short-term capital gains is limited to the stock's cost basis (original purchase price), not its current fair market value. Since short-term capital gains have no tax rate ceiling, you would have to weigh the benefits of donating short-term assets.
The exact savings depend on your tax bracket, the asset's appreciation, and how long you've held it, but the math is consistently favorable. Consider this scenario comparing a cash donation from a bank account and a stock donation.
What Types of Assets Can You Donate?
While publicly traded stocks are the most common, nonprofits can accept a wide variety of appreciated assets:
- Publicly traded securities (stocks, bonds, mutual funds)
- Real estate (residential, commercial, or land)
- Private business interests (S-corp or LLC shares)
- Cryptocurrency - for real!(Bitcoin, Ethereum, etc.)
- Restricted or post-IPO stock
- Private equity and hedge fund interests
Each asset type has its own complexities, but the tax benefits remain compelling across all categories.
Making Stock Donations Simple
Today, several platforms have emerged to eliminate barriers and make donating appreciated assets as easy as writing a check. These companies act as intermediaries, handling the process for both donors and nonprofits. Many charities are set up to receive stock donations directly; however, if yours isn't, here are a few options for donating to nonprofits that may not have a brokerage account to receive stock gifts. Keep in mind that we do not endorse any of the options below, and encourage personal research before using them:
Stock Donator - according to their website, they have experience helping nonprofits accept stock donations. Nonprofits can set up a free account without needing their own brokerage, and donors use a simple online form. They list their fees starting at a minimum of $15, plus possible small brokerage fees.
DonateStock - from reviewing their service offering, the platform handles everything from the transfer documents to tax receipts. There are possible transaction fees associated, but it does say that the service is free to use for donors.
Every.org - claims to work with 1.3 million registered U.S. nonprofits and charges no fees to the organizations; 100% of the converted value goes directly to the nonprofit. Funds are typically disbursed within one to three weeks after liquidation.
The Signatry - a faith-based option for giving that sponsors donor-advised funds, but can also facilitate stock giving. Fees look to be competitive with other providers.
For donors who want flexibility in timing their charitable distributions or prefer to donate to multiple charities over time, donor-advised funds offer another approach. Here are some popular options that we have seen clients use:
Fidelity Charitable - Through the Giving Account, they have worked with a variety of donors and have supported charities in every U.S. state. No initial minimum contribution, and has processing/investment fees.
Schwab Charitable - through DAFgiving360, it accepts numerous asset types with no minimum initial contribution, offering flexibility for donors of all levels.
Vanguard Charitable - requires a $25,000 minimum but offers some of the industry's lowest fees, with tiered pricing starting at 12 basis points.
Getting Started
If you're holding investments (regardless of appreciation) and planning to make a charitable gift this year, consider these steps:
- Review your portfolio to identify assets you would like to donate. It could be a portion of gains or even be a stock that you would not like to hold anymore.
- Consult with your tax advisor and Mission Financial Planning to maximize the benefits within your overall financial plan
- Choose a platform that matches your giving goals (direct to nonprofit or through a donor-advised fund)
- Initiate the transfer well before year-end to ensure processing by December 31st
The Bottom Line
Donating appreciated assets instead of cash may help increase both your charitable impact and your tax savings. What was once a complex process reserved for high-net-worth donors is now accessible to anyone holding investments, thanks to modern platforms that handle the administrative details.
Whether you're donating $1,000 or $1 million, appreciated asset donations could be worth exploring to see how they might fit into your charitable giving strategy. If you would like to talk about different charitable gifting options and how they would fit with your financial plan, contact us to set up a time to talk.
Thanks for reading!
Disclaimer
IRS CIRCULAR 230 DISCLOSURE
In compliance with requirements imposed by the IRS pursuant to IRS Circular 230, we inform you that any U.S. tax advice above is for informational purposes not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.