How donating shares instead of dollars can lead to tax-free investing

How donating shares instead of dollars can lead to tax-free investing Dec 1, 2025 8:00:00 AM And how we make it easy. Key takeaways 2017 legislation weakened the federal income tax incentive for donating to charity. Donating and replacing taxable shares, however, can unlock a new avenue for tax savings. Pairing the strategy with tax-loss harvesting can lead to even more savings. Betterment gives you two easy ways to donate shares: directly to one of our partner charities, or through a donor-advised fund. Donating to charity isn't the big tax write-off it used to be. Not since the 2017 Tax Cuts and Jobs Act watered down the charitable tax deduction. But altruistic investors such as yourself have another tax-saving option at your disposal: donating shares. In this article, we’ll walk you through: How donating (then replacing) shares resets their tax bill How adding tax-loss harvesting can plus-up the savings How we make it easy to donate shares How donating (then replacing) shares resets their tax bill Let's start with a couple prerequisites up front: You can only donate appreciated shares, meaning ones that have gained in value. We require that you've held them for at least a year to maximize the potential tax savings. You can only donate shares from a taxable investing account. That means tax-advantaged accounts like 401(k)s and IRAs—with one exception for those 70 ½ or older—are off the table. So if you'd like to start leveraging this tax strategy, you'll need to first open and fund a taxable investing account. Lift up your cause and lower your taxes. Similar to the mechanics of tax-loss harvesting, donating shares lowers your taxes thanks to a little something called cost basis. Cost basis is the price you pay for a share. It's how the IRS calculates the profits (aka capital gains) on your investing, and by extension your taxes owed on that investing. By donating and (most importantly) replacing shares, you reset the price paid for that slice of your investing. This means a share that had increased in value by say, 20%, suddenly becomes, in the eyes of the IRS, a share that hasn't appreciated at all. It's as if all the profit to that point never happened. Don't worry; the capital gains are still very much there. And you're wealthier for it. But the taxes owed when you ultimately sell those investments will be lower than if you had never donated. How adding tax-loss harvesting can plus-up the savings Tax-loss harvesting (TLH) helps you defer taxes down the road, freeing up more cash to invest now. And it does this by letting you deduct taxes today in exchange for a higher tax bill in the future. You can think of it like handing Uncle Sam an IOU come tax time. But guess what happens when you donate a share that was originally part of a harvest? You erase its entire tax bill—IOU and all—up to that point. It's one of the few ways you can actually avoid paying taxes altogether on some of your investing. So it’s no wonder why this combo move has long been a favorite of the wealthy. Now, thanks to technology like ours, it's never been easier for everyday investors to do right while reaping the same rewards. How we make it easy to donate shares Before tech like ours helped lower barriers, donating shares required several steps, things like tracking down the charity’s brokerage information, figuring out which shares to give, and filling out the necessary forms. But with Betterment, it’s as easy as logging in on a desktop browser and making a few clicks. We show you exactly how much of your taxable investing is eligible to donate, and our TaxMax technology seeks out the most tax-efficient shares to sell and donate. We also give you two ways to give. Donate directly to more than a dozen partner charities. We don’t charge any processing fees, so your entire donation goes directly to them. Open a donor-advised fund (DAF) with our partners at Daffy and donate to that, then choose from up to 1.5 million nonprofits, schools, and faith-based organizations while your funds stay invested. You get the tax deduction up front and can then automate your giving or disperse funds as you go. DAFs have historically come with high minimums, high fees, and dated technology, but Daffy is doing its best to change that. DAFs compared Daffy Fidelity Schwab Vanguard Minimum to open $0 $0 $0 $25,000 Minimum annual cost $36 0.60% or $100 0.60% 0.60% or $250 Average investment fee 0.05% 0.54% 0.65% 0.06% Source: Daffy Give smarter. Save bigger. Feel better. By donating and replacing shares, you can give your taxable investing a fresh start. Pair it with tax-loss harvesting, and you could wipe out even more of your tax bill while keeping your money growing. And since Betterment takes care of the tricky parts, from choosing which shares to donate to handling the logistics, giving smarter has never been easier. It’s one simple move that helps your portfolio—and your favorite cause—thrive.