Donating appreciated stock from your investment portfolio instead of cash has two benefits. First, you can claim charitable deductions equal to the stock’s fair market value if you itemize deductions. Second, you can avoid the tax on the unrealized capital gains of the donated property.

For example, if your ordinary-income tax rate is 37% and your long-term capital gains rate is 20%, you have a stock with fair market value of $20,000 with a cost basis of $5,000 and you itemize deductions.

If you sell the stock, you would pay $3,000 on the $15,000 long-term capital gain and possibly an additional $570 3.8% NIIT for this transaction.

If you donate the cash of $20,000 to charity, you can save $7,400 on your federal tax. However, if you donate the stock to qualified charitable organizations, you can save $10,970 ($3,000 on capital gain tax and $570 NIIT tax we calculated above, plus $7,400 from the $20,000 income tax deduction) in federal tax.

Remember, you can only get the tax benefit from charitable deduction if your total itemized deductions exceed your standard deduction. And the stock that you plan to donate has to be held more than one year.

Finally, if the fair market value of stock is lower than the cost, which means the stock is at loss, it would be more beneficial to sell the stock and donate the cash to charity. This way, you can deduct the loss and get the benefits from donation.

If you have any questions or would like to know more about the appreciated stock, please feel free to reach out to a Stephano Slack representative. We are happy to help you and your business with tax planning strategy.

Yan (Isabella) Ma


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