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Highlights
- Donating stocks instead of cash is always a better option.
- Stock donations can maximise charitable giving with the help of tax benefits.
- Donating securities is becoming a very popular investment move for the wealthy donors.
Donating stocks instead of cash is always a better option considering the interest of both parties. A wide range of charities, schools, hospitals, and other non-profit organisations prefer receiving stocks as gift or donation as it provides them with tax benefits and maximises their gains. These organisations appreciate all kinds of donations, but from a donor’s perspective cash donations aren’t the most financially viable option.
Several veteran investors already understand that stock donations are a better way to maximise their charitable giving and also offer tax benefits to both parties. The new investors are also getting aware and are realising that stock donations are an easier, faster, and more convenient way to donate.
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Tax benefits of stock donations
The owner of a stock doesn’t need to pay any capital gains tax in case of an increase in the value of the stock from the time of its purchase. The stock can instead be donated to another party to avoid the tax. If the securities are being donated to a charitable organisation, the total amount of donation will be eligible for a tax deduction, and thus the donor will be incentivised to make a bigger donation. This benefits both parties as the avoidance of tax by donors leads to higher donations for charitable organisations.
Let’s see how. For instance, you wish to give out £1000 to a charity, you may do it via cash or stock. If the stock was worth £700 when you bought it, but now it values £1,128.55, assuming there’s a 30% capital gains tax on the stock’s appreciation, the shares will be sold at £1,000 (1,128.55 - (1,128.55 - 700)*0.30). Whether you choose to go for cash or donate stock, it will cost you the same i.e. £1,000 in this case. However, the charity can benefit more from stock donation instead of cash, as it will get a gift worth £1,128.55, instead of the £1,000 cash.
Another notable point to consider is that if the stock is held for less than a year, then your deduction would be limited to cost basis, while in case of holding stocks for more than a year, the full fair market value of the donated stock may be deducted before giving it away.
Also, it is generally better to sell a stock prior to donating cash to a charity if the stock is trading at a price less than what you purchased it for. This enables you to take the loss which can be used for tax purposes.
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Is donating stocks a good option?
Seasoned investors and entrepreneurs get enormous tax benefits by donating stocks. Donating securities is becoming a very popular investment move for the wealthy donors. While increasing private wealth accumulation is creating inequalities in the society, incentivised charitable giving is creating a significant difference.
Investors can use stock donations to integrate their investment strategy using tax-effective tactics. Wealthier investors use stock donations to optimise their portfolio which in turn leads to betterment of the society.
Stock donations are carried out online and are safe and secure. But it is still important to conduct research to find a reliable donation platform and a well-regulated organisation to invest in.
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