Give the Smart Way: Stop Paying Taxes on Stocks and Receive a Big Tax Deduction

Donating Stocks

Let’s talk about smart generosity. Most people think of charity as simply writing a check or swiping a card, but savvy donors know another way: donating stock. That stock sitting in your portfolio, whether it’s been growing steadily or just sitting there, could be your golden ticket to giving more while keeping more of your hard-earned money.

If you're familiar with the market, you may already know the powerful benefits of donating stock to charity. Or maybe you own shares and are just now discovering this incredible giving hack.

On the other hand, if you’re new to investing or haven’t yet bought your first stock, you might be wondering, “How does the stock market even work? And when does the stock market open?”

No matter where you are on your investment journey, this article is for you. Whether you’re a seasoned trader or a total beginner, what you’re about to learn can help you support causes you care about, earn a tax deduction, and avoid paying capital gains taxes on your stocks.

Photo of phone with a stock page pulled up.

How the Stock Market Works

Before diving into the benefits of donating stock, let’s first recap how the stock market works. The stock market is a place where people buy and sell ownership in companies, stocks. When you buy stock, you own a small part of the company. The price of a stock goes up and down based on how well the company is doing and what investors think about its future.

If the company performs well, the stock price usually rises, and if it struggles, the price may fall. Prices can also fall and rise due to other factors in the world. People buy stocks hoping the price will go up so they can sell them later for a profit. Some companies also pay shareholders a portion of their profits, called dividends.

To start investing, you need a brokerage account, where you can buy and sell stocks. Some investors hold stocks for a long time, while others trade them quickly for short-term gains. Though the stock market can offer high rewards, it also comes with risks, as stock prices can change quickly.

Why Donating Stock is a Smart Move

When you sell stocks that have appreciated in value, you’re hit with capital gains taxes. These taxes vary depending on how long you've held the stocks and your income. Add in state taxes and additional surtaxes, and you could lose a significant portion of the value.

Here’s the good news: if you donate those stocks directly to a tax-exempt charity, you don’t pay any capital gains taxes, and neither does the charity. The amount that would have gone to the IRS stays with the charity, meaning your donation has a bigger impact.

Plus, you’ll receive a tax deduction based on the full fair market value of the stock at the time of the transfer. The deduction limit for gifting stock to a public charity is up to 30% of your adjusted gross income, and any excess can be carried over for up to five years.

For example, let’s say you bought stock for $1,000 and now it’s worth $5,000

If you donate the stock directly to a qualified charity:

●      You don’t pay capital gains tax on the $4,000 profit.

●      You can claim a charitable deduction for the full fair market value of $5,000.

●      You can deduct up to 30% of your AGI this year and carry over the rest if needed.

So, you avoid taxes and get a bigger write-off. Win-win.

However, if your stock has dropped in value, let’s say you bought it for $5,000 and now it's worth $1,000, you can only deduct the current fair market value of $1,000, or if you donate the stock, you do not get to claim the loss on your taxes. That loss goes away.

Important Note: If you want to give your stock to charity you must do this before it depreciates in value to harvest the gains mentioned in this article.

Timing is Everything

When you donate stock, you can benefit from timing your gift during a market upswing. If the stock is volatile and its price jumps, donating it when it’s at a high point can give you a larger tax deduction. That’s because the value of your charitable donation is based on the fair market value of the stock at the time you transfer it to the charity, not what happens to the stock afterward. So, if you donate during a peak, you may get a bigger write-off than if you donated when the stock was lower.

Trading curbs, which temporarily pause trading during extreme market swings, don’t directly help you when donating stock. However, they can delay your ability to make a donation at a specific price point if the market is halted. In fast-moving markets, it's important to work with your broker and the charity to make the donation quickly, so you can lock in a good value for your deduction before prices shift again.

Make sure to keep an eye on market news and the largest stock market drops and when it rises, as these could offer an opportunity to donate stocks at a higher market value, giving you even more of a tax benefit.

Photo of stocks going up and down.

The Importance of the Standard Deduction When Giving Stocks

The standard deduction is a set amount of income that you don’t have to pay taxes on. Think of it like a tax-free zone: The IRS lets you automatically subtract this amount from your income, so you only pay taxes on what's left.

When planning your donations, it’s crucial to consider the standard deduction for the year. Here are the amounts for 2024:

●      $29,200 for married couples filing jointly

●      $14,600 for single filers

●      $21,900 for heads of household

If your total deductions are lower than these amounts, donating stock may not offer significant tax benefits, as you’ll likely take the standard deduction. However, if your deductions exceed these thresholds, you may benefit from itemizing your deductions.

Itemizing your deduction means listing out specific expenses on your tax return that the IRS allows you to deduct from your taxable income, instead of taking the standard deduction, which is a flat amount most people use. In this case, charitable contributions can play a significant role in lowering the amount of taxes you have to pay on your taxable income.

Pro Tip: One strategy is “bunching” your deductions, where you make several years' worth of charitable donations in one year. By doing this, you can surpass the standard deduction and itemize your deductions, maximizing your tax savings.

How Bunching Deductions Can Maximize Your Tax Benefit

Here’s a simple example:

●      Standard Deduction (2024): $29,200 (for married couples filing jointly)

●      If you donate $10,000 this year, your total deductions might be only $10,000, which is lower than the standard deduction.

●      But, if you donate $30,000 in one year (by bunching multiple years’ worth of donations), your total deductions could exceed $29,200, allowing you to itemize and gain a bigger tax benefit.

Bunching not only helps you exceed the standard deduction, but it also helps you avoid capital gains taxes, ensuring a more effective donation.

 

What’s Not Tax Deductible?

It’s important to note that not every donation is tax-deductible. Donations to political campaigns or individuals don’t qualify. Donations given to charities that do not hold a 501(c)(3) status are not tax-deductible. Similarly, if you take the standard deduction, you can’t deduct charitable donations that you would have otherwise itemized.

Think About Using a Donor-Advised Fund (DAF)

If you're not ready to make a large stock donation or want to spread out your charitable giving over time, consider using a donor-advised fund (DAF). It works like an investment account for charitable giving. You can transfer stock to the fund, enjoy the same tax benefits as direct donations, and then make grants to your chosen charities at a later time.

A DAF allows you to take the tax deduction right away in the year you transfer the stock and distribute donations later. DAF also allows you to donate anonymously and report only one donation instead of multiple receipts. Your contribution can also grow tax-free, increasing the amount you are eventually able to donate.

Photo of some one-hundred-dollar bills.

Who Should Consider Donating Stock?

Anyone who has stock that has appreciated value and has been held for more than a year should consider donating. The tax benefits increase with your income, but even moderate-income earners can benefit.

"The higher your income, the greater the tax benefit," says Kelly Elsensohn, a wealth advisor at Wealth Source. But it’s not just for the wealthy. Even if you earn between $100,000 and $200,000, you can still take advantage of stock donations.

David Levi, CPA and Senior Managing Director at CBIZ MHM, often sees retirees use stock donations to reduce taxes while maintaining cash reserves for everyday expenses.

If you're not in these categories, David Levi suggests donating at least $1,000 in stock to make the transaction worthwhile for your broker.

Get Started with Stock Donations Today!

If you’re ready to make your donation go further and maximize your tax benefits, consider donating stock to a cause you care about. Reach out to your brokerage to learn how to initiate a stock donation or explore using a donor-advised fund to simplify the process.

You can transfer stock to LIFE using the following information.

●      Account Name: Life for Relief & Development

●      Brokerage Firm: Saturna Capital

●      Account Number: PLR005114

●      DTC Number: 0443

●      Website: https://www.saturna.com/amana

●      Phone: 1-360-734-1266

After initiating the transfer, donors should email accounting@lifeusa.org with:

●      Donor name

●      Name and number of shares

●      Expected transfer date

Donating stock is an opportunity for anyone who wants to make a bigger impact without paying more. Start today and make your generosity work smarter.

“This article is for informational purposes only and does not constitute financial, tax, or legal advice. Please consult a qualified advisor before making any charitable contributions.”

Sources

1. IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2024." IRS, U.S. Department of the Treasury, 13 Apr. 2024, bbbb,b;l;;;;;;;;,llllwww.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024. Accessed 3 Apr. 2025.

   
   
   
   

2. Forbes. "How to Donate Stock." Forbes, 23 Apr. 2021, www.forbes.com/advisor/investing/donate-stock/.

   
   
   
   

3. Kiplinger

   
   

    Caldwell, Kelley Holland. “What Can a Donor-Advised Fund Do for You? (A Lot).” Kiplinger, Apr. 2025, https://www.kiplinger.com/retirement/donor-advised-fund-daf-can-do-a-lot-for-you.

4. Fidelity Charitable

   
   

    Fidelity Charitable. “What Is a Donor-Advised Fund?” Fidelity Charitable, https://www.fidelitycharitable.org/guidance/philanthropy/what-is-a-donor-advised-fund.html.

   
   
   
   

5. Investopedia

   
   

    McGuire, Tom. “Donor-Advised Funds: Benefits and Drawbacks.” Investopedia, 9 Aug. 2016, https://www.investopedia.com/articles/managing-wealth/080216/donoradvised-funds-benefits-and-drawbacks.asp.

   
   
   
   

6. 4. National Philanthropic Trust

   
   

    National Philanthropic Trust. “Benefits of Donor-Advised Funds.” NPT, https://www.nptrust.org/what-is-a-donor-advised-fund/benefits/.