How to Make a Stock Charitable Contribution

A stock charitable contribution is the act of donating shares of publicly-traded stock, mutual funds, or other securities directly to a qualified charitable organization. Instead of writing a check, a donor transfers ownership of their investments to the nonprofit. This method of giving allows individuals to support causes they care about, and the process involves working with both a brokerage firm and the charity to move the shares.

Tax Implications of Donating Stock

The main incentive for donating appreciated stock is a dual tax benefit. When you donate stock owned for more than one year that has increased in value, you can take a charitable deduction for the full fair market value. You also avoid paying the capital gains tax that would have been due if you had sold the stock first and then donated the cash. This allows the charity to receive the full value of the stock without it being reduced by taxes.

For example, if you sold stock valued at $5,000 that you originally purchased for $1,000, you would realize a $4,000 capital gain. Depending on your income, you would owe federal capital gains tax, which can be as high as 20%. Higher-income investors may also owe an additional 3.8% Net Investment Income Tax. By donating the stock directly, the charity receives the full $5,000, and you avoid this tax liability.

The holding period of the stock affects its tax treatment. To receive these tax benefits, the stock must be a long-term capital asset, meaning you owned it for more than one year. If you donate stock held for one year or less, your deduction is limited to your cost basis—what you originally paid for the stock—not its current fair market value.

Charitable deductions are also subject to limits based on your adjusted gross income (AGI). For donations of appreciated stock, the deduction is limited to 30% of your AGI for the year, while the limit for cash donations is 60% of AGI. If your donation exceeds the AGI limit, you can carry forward the excess deduction for up to five additional years.

It is not advisable to donate stock that has decreased in value. If the stock’s current market value is less than your original purchase price, you would not benefit from avoiding capital gains tax. A better approach is to sell the stock to realize a capital loss, which can offset other capital gains on your tax return. You can then donate the cash proceeds from the sale and claim a deduction for the cash gift.

Determining the Value of Your Contribution

The value of your charitable deduction for a stock donation is its Fair Market Value (FMV) on the date the transfer to the charity is completed. For stocks traded on an exchange, IRS Publication 561 specifies that the FMV is the average of the highest and lowest selling prices on the date of the contribution.

You can find the high and low trading prices for a specific date through your brokerage platform or financial news websites. It is important to use the date the shares are officially received by the charity’s account, not the date you initiated the transfer, as the value can fluctuate daily. This date will be recorded by the organization and provided in their acknowledgment letter.

The valuation process is more complex for contributions of non-publicly traded stock. The IRS requires you to obtain a “qualified appraisal” if the value of the donation is more than $10,000. A qualified appraiser is an individual who meets specific education and experience requirements and must be independent of both the donor and the charity. The appraisal is a formal document detailing the property’s value and the method used to determine it.

Information and Documentation Requirements

For any single charitable contribution of $250 or more, you must obtain a contemporaneous written acknowledgment from the recipient organization before filing your tax return. This document must state the charity’s name, the date, a description of the contribution, and whether the charity provided any goods or services in exchange.

For all noncash charitable contributions totaling more than $500 for the year, you must file IRS Form 8283, “Noncash Charitable Contributions,” with your tax return. This form requires you to report information such as the name and address of the charity, a description of the donated property, the contribution date, and the date you acquired the stock.

The requirements for Form 8283 vary by the donation’s value. For noncash donations over $500 but not more than $5,000, you only need to complete Section A.

For donated stock valued at more than $5,000, you must complete Section B of Form 8283. Publicly traded securities are exempt from the formal appraisal requirement, even at this value. However, if you donate non-publicly traded stock valued over $10,000, you must obtain a qualified appraisal. In either case for Section B, the charity must sign the form to acknowledge receipt.

The Stock Transfer Process

The first step is to contact the charitable organization you wish to support. You should inform them of your intent to donate stock and request their specific brokerage account information, which includes the firm’s name, the charity’s account name, their account number, and the Depository Trust Company (DTC) number.

With this information, you will instruct your own broker to initiate the transfer, often through a letter of instruction or an online form. You will specify the exact number of shares of the stock you wish to donate and provide the charity’s account details. This is often referred to as “journaling” the shares to the charity’s account.

Initiate this transfer well before any year-end deadlines, as the process can take several days or longer to complete. The contribution is not considered complete for tax purposes until the shares are officially credited to the charity’s account. Your broker can provide confirmation once the transfer is executed.

After the transfer is complete, the charity will liquidate the shares and send you the required written acknowledgment for your tax records. This document serves as your proof of donation and provides the date for determining the stock’s fair market value.