How donating shares can help you save on taxes

Donating shares lets you avoid paying taxes on capital gains, and you can still deduct the value of your gift on your tax return.

In 1 minute

There are many different ways for you to give back to your community. For example, giving directly to individuals in poverty, donating cash to charities, and volunteering your time are all well-known and worthwhile options.

As an investor, you may have access to an option that comes with significant potential advantages: You can donate qualifying appreciated sharesor in other words, shares that are worth more today than when you acquired them.

When you donate in the form of cash, you can deduct the value of that donation on your tax return. And that’s great! But by donating cash, you could be missing out on an additional tax incentive.

Donate appreciated shares instead, and you could also avoid paying taxes on capital gains. That means your donation goes further while spending the same amount.

And yes, you still get to deduct the value of those gifted shares on your tax return—as long as you’ve held them for at least a year. However, you should be aware that the deduction may not be exactly the same value. The IRS calculates the tax-deductible value of those shares as the average of the highest price and the lowest price on the day you made the transfer.

Sometimes that means the deductible value ends up being slightly lower than the exact value you donated. Other times it ends up being slightly higher, giving you yet another benefit! But either way, the amount you save by avoiding the capital gains tax can exceed the differences in valuation.

Consider if boosting your charitable giving by donating shares is right for you.

In 5 minutes

In this guide, we’ll:

  • Explore donating shares instead of cash
  • Explain how the IRS calculates these deductions
  • Show you how Betterment makes donating shares easy

You’ve been investing, planning for your future and becoming financially secure, and you’d like to pay it forward. That’s great! There are many ways to give back to your community. You might donate to charitable organizations. You might give cash directly to those in need. Or you might give of your time by volunteering.

As an investor, you have a charitable super power. You can make your gifts go further and enjoy tax benefits at the same time.

Why you should consider donating shares instead of cash

When you have assets that have gained value, donating cash means you may not be making the most of your gift.

Donations in the form of eligible shares offer two main advantages:

  • You won’t pay capital gains taxes on the shares you donate
  • You can deduct the value of your gift on your tax return

Since you get more tax benefits, your money can stretch further. You have more left over to donate, invest, or use as you see fit.

How the IRS calculates these deductions

When you donate a share, you do so at a certain point in time, with an associated price. For greatest tax efficiency, you generally should only donate shares you’ve held for at least one year1. At that point, the IRS lets you claim a deduction for the whole, appreciated value up to 30% of adjusted gross income.

However, the price at the time of your gift isn’t necessarily the same value that’s deducted on your tax return. The IRS rules say the deductible amount for your tax filing must be the “fair market value.” And the IRS determines the fair market value by taking the average of the highest price and lowest price on the day of the transfer.

Say you donate $1,000 worth of shares: 20 shares worth $50 each. During the day of your donation, the shares trade at a high price of $51 and a low of $47. The IRS will call the fair market value of all twenty shares $980. That $980 is the deductible value when you file your taxes for the year. So keep in mind that the value you plan to donate won’t necessarily match the exact value you can deduct on your taxes.

However, while the numbers may be slightly lower or higher than you initially expect, the value of saving on capital gains tax by donating appreciated shares and then being able to deduct that value to lower your taxes even further, generally exceeds any differences in valuation during the day of transfer.

Betterment makes donating shares easy

We believe that donating securities should be as easy as donating cash. You’re trying to make a difference. You shouldn’t have to worry about math or forms. No snail mail. No walking into an office. So we streamlined the process. Here’s how:

  • We track how much of your account is eligible to give to charity. Betterment automatically reports the amount eligible for donation, assessing which shares of your investments have been held for more than one year, and which of those have the most appreciation.
  • We estimate the tax benefits of your gift. Before you complete a donation, we’ll let you know the expected deductible amount and potential capital gains taxes saved.
  • We move assets from your account to a charitable organization’s account. No paperwork! With a traditional broker, your gift would have to move from your account to the organization’s brokerage account, which involves time and paperwork. But Betterment offers charities investment accounts with no advisory fees—on up to $1 million of assets—to make the gift process seamless.
  • We provide a tax receipt once the donation is complete. We’ll email the receipt to you, and you’ll also be able to access it from your Betterment account at any time. Additionally, we take on most of the reporting for our partner charities, letting them devote their resources more efficiently to the causes you support, rather than to administrative tasks.
  • We partner with highly-rated charities across a range of causes. These include nonprofits such as the World Wildlife Fund, Boys and Girls Clubs of America, and Givewell. Log in to your Betterment account to see the full list. Don’t see your preferred charity? Put in a request to add them!

Gifting securities to charity, rather than donating cash, is a strategy that wealthy philanthropists have been employing for decades to save on capital gains taxes. We hope to democratize these benefits by helping everyday Americans use the same exact tax-saving method.

If you decide it’s right for you, join our community of altruistic investors today and make the most of your charitable donations! If you’re already a Betterment customer, log in to donate your appreciated shares.

1IRS Publication 526, pg. 11-12

Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a tax professional for more information.