InvestingRetirementTax Tips
Donating Stock vs. Cash: The ‘Double Tax Dip’ Strategy
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Result: The charity gets the same $50k, but you saved $10,710.
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Donating Stock vs. Cash: The ‘Double Tax Dip’ Strategy
CORE INSIGHTS
- The Mistake: Writing a check to charity is inefficient. You pay income tax, then give post-tax dollars. Donating stock bypasses this.
- Double Dip: You get a full FMV deduction AND avoid Capital Gains Tax (up to 23.8%). It is the only way to get credit for untaxed money.
- The Math: On a $50,000 donation, donating stock instead of cash can save over $10,000 in total taxes.
Generosity is noble, but tax inefficiency is unnecessary. If you have a portfolio with winners, writing a check to charity is a mathematical error. Donating Stock is the ultimate “Have Your Cake and Eat It Too” maneuver.
The “Double Dip” Equation
By moving the asset directly to a 501(c)(3), you bypass realization.
- Benefit 1 (Cap Gains): Avoid 23.8% tax on growth.
- Benefit 2 (Income Tax): Deduct full FMV from AGI.
- Rule: Stock must be held >1 year (Long Term).
What-If Scenario: $50k Donation ($5k Cost Basis)
| Strategy | Cap Gains Tax | Total Net Cost |
|---|---|---|
| Sell & Donate Cash | $10,710 (Paid) | $42,210 |
| Donate Stock | $0 (Eliminated) | $31,500 |
Visualizing Tax Efficiency
*Figure 1: Net Cost to Donor. The Green bar (Stock) is significantly cheaper than Cash (Red).*
Strategic Action Steps
1
Open a DAF
Most charities can’t handle stock. Open a Donor Advised Fund (Fidelity/Schwab). It acts as a “Charitable Checking Account.”
Most charities can’t handle stock. Open a Donor Advised Fund (Fidelity/Schwab). It acts as a “Charitable Checking Account.”
2
Transfer “High Gain” Lots
Identify tax lots with the lowest cost basis. Transfer shares directly to the DAF. Do NOT sell them first.
Identify tax lots with the lowest cost basis. Transfer shares directly to the DAF. Do NOT sell them first.
3
Buy Back (Optional)
Use the cash you would have donated to buy new shares. You just reset your cost basis to today’s price, tax-free.
Use the cash you would have donated to buy new shares. You just reset your cost basis to today’s price, tax-free.
The Bottom Line: Who Should Choose What?
- Do This: For donations >$1,000 if you have appreciated assets in a taxable account.
- Avoid This: Donating “Losers.” Sell losers first to harvest the tax loss, then donate the cash.
Frequently Asked Questions
Why is donating stock better than donating cash?
It is a ‘Double Dip.’ You avoid Capital Gains Tax (up to 23.8%) on the appreciation AND get a full charitable deduction. Donating cash only gives the deduction.
Can I donate any stock?
You must have held the stock for more than one year (Long-Term). Short-term holdings only allow a deduction equal to the cost basis, destroying the benefit.
What if the charity doesn’t have a brokerage account?
Use a Donor Advised Fund (DAF). You donate stock to the DAF to capture the tax break immediately, then grant cash from the DAF to the charity.
Disclaimer: This content is for informational purposes only. AGI limits apply. Consult a CPA.