Donating Company Stock: Great for holiday charitable giving

Giving appreciated stock can be a great way to support your favorite charity and reduce your tax bill. For shares you may have recently received from an option exercise, ESPP purchase, or restricted stock vesting, the tax treatment is the same as it is for donations of any stock to a qualified charity. When you have held the stock for more than one year, at the time of the donation you get a tax deduction for the fair market value of the stock (not for your cost basis). If the sale of the appreciated shares would have triggered long-term capital gains, your deduction is up to 30% of your adjusted gross income (20% for family foundations), and you can carry forward amounts over this for five years. Accordingly, for large donations, some planning may be appropriate.

When you donate stock, to implement the transfer you need the charity’s brokerage account information, with the DTC (Depository Trust Company) number and an account number. Your instructions to your brokerage firm should include this information and any specific lot identification. Many times the “default” setting on a brokerage firm is “HiFO” (highest cost basis first) but in this transaction you’ll want it to be “LoFO” (lowest cost basis first).

For year-end donations, be sure the stock transfer is completed by December 31 to make it count for the current tax year. For electronic transfers from your brokerage account, the donation is recorded on the day it is received by the charity/foundation (not when you approve the transfer). With increased year-end activity at brokerage firms, you should plan your year-end stock gifts as early as possible and have ongoing communications with your broker to ensure that the transfer takes place.