Have you considered donating stock instead of cash?

Charitable giving is one of the best ways for high-net-worth individuals to make impactful contributions to the causes they feel are important.?Instead of making a cash donation or liquidating your investments to give, have you considered donating stock instead??Donating stock comes with various personal financial advantages as well as making a meaningful impact on the charitable organizations you give to.?Over the years, I’ve helped my clients make purposeful use of their concentrated stock positions through charitable giving.?Let’s examine how donating stock could transform your finances this year!

1.??????Donating stock lowers your portfolio exposure

High-income professionals with concentrated stock, stock options, RSU’s, etc. have common portfolio concerns that need to be addressed: their asset allocation may not be in line with their risk tolerance.?Accumulating concentrated stock can be a great tool to increase the value of your overall portfolio, but over the years having an abundance of particular stock holdings can put your portfolio at risk, especially as you are getting closer to retirement or have major life milestones around the corner.?How much exposure is too risky to bear??There is no universal answer because it depends on the person’s particular situation and goals.?This may make some readers uncomfortable, but there is good news:?An advantageous way to lower your exposure is donating stock to charities.?By donating stock, you can lower your portfolio exposure, whether it be slowly over time or in a lump sum.?Typically you'll want to work with your financial professional to decide how much to donate at a time, or what price per share to donate at.

2.??????Avoiding capital gains taxes

Let’s dive deeper into the idea of donating stock versus making an after-tax donation.?Suppose your company issues 50 shares to you at $200 per share five years ago.?Your cost basis is $10,000 (50 shares x $200 per share).?Five years later, the stock has appreciated to $300 per share.?The fair value of your shares is $15,000 (50 shares x $300 per share).?If you were to sell your shares to make a charitable contribution, here’s how the math would break down:?

• If you sold all 50 shares at $15,000, you would have to pay long-term capital gains taxes.?If long-term capital gains are taxed at 15% - 20% (let's use 20% for this example), you will have to pay $1,000 in taxes [($15,000-$10,000) x .20 = $1,000].?This means your after-tax donation to your charity of choice is $14,000 ($15,000 gain - $1,000 taxes owed).
• If you were to instead donate the stock directly to the charity, you could donate the full fair value of $15,000.?You don't pay taxes on the gain because you're making a charitable donation and the charity doesn't owe taxes when they sell the stock because they're a non-profit. It's a win/win!

As a final reminder, when you donate stock, ownership changes from your name to the charity’s name.?You can itemize the donation, reducing your taxable income by the full value of the stock!?Giving stock to charity allows you to sidestep the capital gains taxes, assuming you were planning to sell the stock.?

3.??????Creating cash in your portfolio

We’ve already discussed two great perks of stock donation.?Did you know that it also help you create cash in your portfolio??Suppose you were planning on donating $10,000 this year to your favorite charity.?Most people would go straight to their checkbook to make their donation.?Instead, consider donating your stock!?Not only are your charitable goals met, but you can effectively make a sale, if you use the following strategy - Donate $10k in highly appreciated stock, and deposit $10k into your portfolio. By using the strategy above you've 1) Lowered risk in your account via donating stock, 2) Created more cash to invest via depositing cash, 3) Effectively you've "made a sale" without paying capital gains tax!

4.??????Meeting your charitable goals

Although there are various personal benefits to a stock donation, it’s important to highlight the positive impact created through generous gifting.?As discussed, you can give more, keep more, and pay less in taxes by donating your stock holdings.

As listed above, there are certain opportunities presented to folks with concentrated stock positions, such as the donation of highly appreciated stock.?If you don’t have a regimented or well-thought plan for donating stock, I’d encourage you to consult with your financial advisor, CPA, and estate attorney to develop the best plan for your specific needs.?Small changes to your financial regimen such as donating stock can offer meaningful benefits to your household—and allow you to be even more generous with your dollars.

Created with the help of Joe Sowards