The IRS allows you to claim a charitable contribution deduction for the stock donations you make to a tax-exempt charity. However, the amount of your deduction depends on a number of factors, such as your holding period and the fair market value of the stock on the date you make the donation and the value of all other deductible donations you make during the tax year.
Choose Tax-Exempt Charity
The last thing you want to discover after making a donation of your stock portfolio is that the organization you make the donation to is ineligible to receive tax deductible donations. For this reason, you should confirm whether the charity you want to make the donation to has tax-exempt status. The IRS requires nonprofit charitable organizations to apply for tax-exempt status. Only after the IRS approves the application can the charity begin accepting tax deductible donations. The only exception to this rule applies to religious organizations, such as churches or synagogues. The IRS automatically designates religious organizations as tax-exempt.
Stock Donation Value
Whenever you donate property, such as stocks, the IRS allows you to claim a charitable deduction that is equal to the property's value at the time you make the donation. If the stocks you donate trade on a stock exchange, you can use the average trading price on the date of your donation, which you calculate using the highest and lowest trading prices. However, if you donate stock that doesn't trade on a public stock exchange, the IRS allows you to assess the value of the stock using factors such as the net worth of the company, its prospective earnings power and the amount of dividends it pays to shareholders.
Capital Gain Property
The IRS treats your stock holdings as a capital asset. When you donate capital assets that appreciate in value between the time of purchase and the date of donation, and your acquisition date is more than one year prior to the date of donation, the assets are subject to long-term capital gain property treatment. Unlike short-term capital gain donations, the IRS doesn't require you to claim a deduction that is equal to your tax basis rather than fair market value. However, the IRS will reduce the amount you can deduct on the stock donation, as well as all other donations of long-term capital gain property, in a single tax year from 50 percent to 30 percent of your adjusted gross income (AGI). If your donations of long-term capital gain property exceed the limitation amount, you can claim a deduction for the excess in one of the next five tax years.
Schedule A Reporting
Unless you itemize your deductions on Schedule A, you will not recognize any tax savings for your stock donation. Charity deductions are only permissible if you report them on Schedule A. If you choose to claim the standard deduction instead, your stock donation will have no bearing on the amount of income tax you owe. Therefore, it's beneficial to evaluate whether you will have sufficient expenses to itemize before making the donation.
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