Donate stocks today, leave taxes behind tomorrow

Rob Cook
Dec 18, 2024
5 min read

As I meet with my clients I find us often discussing charitable giving as a tax saving strategy.

If you give regularly to your church or another organization, today's tip could save you thousands in taxes by just changing slightly what you’re already doing.

Sound interesting?

Good.

Today’s topic is a little strategy called donating appreciated stock, meaning any stock that’s gone up in value for you since you purchased it.

It’s the MVP of tax-savvy giving. Not only does it let you support causes you care about, but it also packs a double punch: avoiding capital gains taxes and scoring a juicy charitable deduction. Let’s break it down step by step so you can win in the ring of generosity and savings.

What Is Appreciated Stock? (And Why It’s a Big Deal)

Appreciated stock is any stock you own that’s worth more now than when you bought it. Let’s say you invested $10,000 in a company that’s now worth $20,000. That $10,000 gain is “appreciation,” and if you sell the stock, Uncle Sam wants a piece of it—up to 20% in capital gains taxes for high earners like you.

But here’s the kicker: if you donate that stock directly to a qualified charity, you won’t owe a dime in capital gains taxes. Even better, you can deduct the full $50,000 from your taxable income. It’s a win for your wallet and a win for the charity.

Why You’d Want to Do This: Managing Concentrated Stock Positions

Now let’s talk about why this strategy can be a game-changer, especially if you’re holding what’s called a “concentrated stock position”. Many sales professionals receive a large portion of their compensation in company stock through RSUs, stock options, or performance awards. While that’s great for building wealth, it also comes with risks and complications:

Too Many Eggs in One Basket - If a big chunk of your net worth is tied up in one company’s stock, you’re exposed to market volatility. A downturn in the company’s fortunes could have a huge impact on your financial health.
Diversification - Donating appreciated stock allows you to reduce your exposure to a single stock without triggering capital gains taxes. You can then reinvest the cash you would’ve donated into a diversified portfolio that aligns with your financial goals.
A Tax-Smart Way to Unwind Positions - Selling a concentrated stock position outright can lead to a hefty tax bill. By donating part of it, you can chip away at your exposure while saving on taxes and doing good in the process.

If you’ve been hesitant to sell your company stock because of the tax hit, this is a smart alternative. It’s like rebalancing your portfolio with a charitable twist.

What Kinds of Stock Should You Consider Giving?

Not all stock is donation-worthy. Here’s what to look for:

Stock You’ve Held for Over a Year - If you’ve owned the stock for more than a year, it qualifies as “long-term capital gains property,” which means you can deduct its full fair market value. Less than a year? You’re limited to deducting your original purchase price, which isn’t as beneficial.
Highly Appreciated Stock - Got stocks that have skyrocketed in value? Those are prime candidates. The bigger the gain, the more you save on taxes by donating instead of selling.
Company Stock from Equity Compensation - If your employer’s stock has appreciated significantly, donating some shares can help you reduce risk and taxes at the same time.
Avoid Underperformers - If a stock has lost value, it’s better to sell it, claim the loss for tax purposes, and then donate the cash proceeds to charity. This lets you double-dip on tax benefits.

What Qualifies as a Charitable Organization?

Not every organization is eligible for this strategy. Make sure the group you’re donating to is a 501(c)(3) nonprofit. These include:

Religious organizations
Educational institutions
Public charities (like the Red Cross or United Way)
Private foundations (though deductions for these may have stricter limits)

Pro tip: Use the IRS Tax Exempt Organization Search tool to confirm the organization’s status.

Timing Is Everything: When to Act

To take advantage of this strategy, you need to complete your donation by December 31 of the tax year. If you wait until January, the tax savings won’t hit your return until the following year.

Don’t procrastinate—transferring stock can take a few days or even weeks, depending on your brokerage and the charity. Plan ahead to avoid missing the deadline.

(Hence why I’m writing about it this week, instead of another week later)

How Much Can You Deduct?

Your deduction depends on your income and the type of organization you’re donating to. Generally:

You can deduct up to 30% of your adjusted gross income (AGI) when donating appreciated stock to most public charities.
If your donation exceeds the limit, the excess can roll over for up to five years.

A Simple Example of How This Works

Let’s say you bought $10,000 worth of stock, and it’s now worth $50,000. Here’s what happens:

Sell the Stock First - You’d owe up to $8,000 in capital gains taxes on the $40,000 gain. That leaves $42,000 to donate.
Donate the Stock Directly - No capital gains taxes, and you get to deduct the full $50,000 on your taxes.

That’s $8,000 you just saved. Not too shabby!

Why This Strategy Is Perfect for Elite Sales Pros

If you’re earning over $300,000, you’re likely in the 20% capital gains tax bracket. That means your savings potential with this strategy is huge. Plus, as a high earner, your charitable donations are a powerful way to lower your taxable income while making a meaningful impact.

And let’s be real—your stocks probably gained more than your fantasy football team this year. Put them to work in a way that benefits you and your community.

Conclusion:

Donating appreciated stock is like hitting a tax-saving home run. You avoid capital gains taxes, score a big deduction, trim down a concentrated stock position, and make a difference in the world—all at the same time.

So, if you’ve got some winning stocks in your portfolio, consider sharing the wealth. Just remember:

Focus on stocks you’ve held for over a year with significant appreciation.
Pick qualified 501(c)(3) charities.
Get it done by December 31 to lock in your savings for this year.

If you’re ready to put this strategy to work, or if you’re wondering how it fits into your broader wealth plan, let’s chat. I can help you make the most of your stock portfolio while staying tax-smart. Generosity doesn’t have to come at a cost—it can be a win-win for you and the causes you believe in.

Whenever you’re ready, here are a couple of ways in which I can help you save money on your taxes:

Book a free Strategy Call: Provide me with some financial information before the call and in 45 min to an hour I’ll give you every strategy, tactic, tool, and adjustment I’d make to your financial life to help you pay thousands less in taxes and build wealth faster.
Book me as a Keynote Speak: In my talks I share the practical strategies, principles, and rules anyone can adopt to save them thousands of dollars a year on taxes and build wealth more quickly.
Start working together: Feel like you've read enough and are ready to get some help implementing the things we talk about here in this newsletter? Respond to this email letting me know and we can talk about next steps.