Supporting your favorite charities is often about making a difference, not saving on taxes. Still, charitable giving can bring valuable tax benefits, especially when you donate appreciated stock rather than cash. This strategy can reduce your tax bill while helping the causes you care about most.
Why Appreciated Stock Can Be More Powerful Than Cash
Appreciated publicly traded stock that you have held for more than one year is considered long term capital gains property. Donating this type of stock to a qualified charity can offer two distinct tax advantages:
- If you itemize deductions, you may claim a charitable deduction equal to the stock’s fair market value.
- You avoid paying capital gains tax on the appreciation you would owe if you sold the stock yourself.
This approach can be especially beneficial for taxpayers subject to the 3.8 percent Net Investment Income Tax or the top 20 percent long term capital gains rate.
How the Strategy Works
Consider this example: You donate $15,000 of stock that you originally purchased for $5,000. Your ordinary income tax rate is 37 percent, and your long term capital gains rate is 20 percent.
If you sold the stock instead of donating it, you would owe $2,000 in capital gains tax on the $10,000 gain. If you are also subject to the 3.8 percent Net Investment Income Tax, that adds another $380.
By donating the stock directly to charity, you save $7,930 in federal taxes—$2,380 from avoided capital gains tax and NIIT, plus $5,550 from the $15,000 charitable deduction.
If you had donated $15,000 in cash instead, your savings would be only $5,550.
Three Things to Keep in Mind
Before donating stock, review these important considerations:
- Itemized vs. Standard Deduction. You benefit from a charitable deduction only if your total itemized deductions exceed the standard deduction. For 2025, the standard deduction is $15,750 for single filers and married individuals filing separately, $23,625 for heads of household, and $31,500 for married couples filing jointly.
- Deduction Limits for Appreciated Assets. Donations of long term capital gains property have lower deduction limits than cash gifts. You may deduct up to 30 percent of adjusted gross income for gifts to public charities and 20 percent for gifts to nonoperating private foundations. (Cash donations are limited to 60 percent and 30 percent, respectively.)
- Avoid Donating Stock at a Loss. Do not donate stock that is worth less than your purchase price. Instead, sell the stock, claim the capital loss, and then donate the cash proceeds to the charity.
A Smart Year End Tax Strategy
If you plan to itemize deductions on your 2025 return, charitable giving before December 31 is a simple way to reduce your tax liability. Donating highly appreciated stock that you have hesitated to sell can be one of the most effective strategies for minimizing capital gains tax while supporting charitable causes.
For personalized guidance on maximizing your charitable deductions or planning year end tax strategies, contact our affiliate firm John Kiley CPA for professional assistance.
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