Free for 90 days: Sign up now and get 90 days managed free after your first deposit. See offer details

Coming soon: our new one-on-one advice packages. Learn more

Now available: our new one-on-one advice packages. Learn more

Charitable Giving

How Many Tax-Deductible Shares Can You Donate to Charity in a Year?

When you gift a security, there’s usually some difference between the gifted price and the amount you can deduct on your tax return.

Articles by Eric Bronnenkant

By Eric Bronnenkant
Head of Tax, Betterment
Published: November 28, 2017 | Updated: November 16, 2018

When you donate securities to charity, the value that’s deductible on your tax return may differ slightly from the price you intend give to charity.

The market value used by the IRS to determine the tax deduction is based upon the average of the highest and lowest trading prices on the date the investment is transferred to charity.

Betterment helps you easily donate shares to charity by suggesting the tax-optimized value of your appreciated shares.

Many taxpayers are familiar with the fact that if you itemize your deductions on your tax return, you can deduct the value of charitable donations. To be more precise, you can deduct the value of any assets you give to registered charities. Donations include all kinds of valuable assets—money, food, clothing, property, and of course, securities like stocks and bonds.

In order to include itemized deductions on your return, your itemized list must exceed the standard deduction, which has been set at  $12,000 for single individuals and $24,000 for married couples filing a joint return, for the 2018 tax year and beyond. This list includes more than your charitable gifts; it also includes any mortgage interest, state and local taxes, and medical expenses as well. Therefore, if you’re trying to deduct charitable gifts, It may be wise to consider a “bunching” strategy to make multiple years worth of charitable gifts in a single year to help exceed the standard deduction.

It’s worth noting, of course, that even if you are not entitled to a deduction, you may still receive a tax benefit in capital gains taxes avoided on the appreciation.

The dollar amount you can deduct on your taxes requires a valuation of whatever you’re donating. Cash, of course, is easy to value: When you donate a fifty dollar bill, you can deduct $50 on your tax return. Personal property like clothing or food is a little bit more difficult, but the IRS has guidelines on valuing those items. With securities—i.e. stocks and bonds—the process is also very straightforward, but it involves a set of rules. In this article, we’ll review exactly what those rules are.

When you gift a security, there’s usually some difference between the gifted price and the amount you can deduct.

When you gift your security holding to a charity, you’ll do so at certain point in time, with an associated price. Investors are most tax efficient when they only donate shares that they’ve held for at least one year because, in that case, the IRS allows you to claim a deduction for the whole, appreciated value. However, the price at the time that of your gift will not necessarily be the same value that’s deductible on your tax return.

This difference arises from IRS rules that state that the deductible amount for your tax filing must be the fair market value. And the IRS has a specific way of determining this value:

On the day of the transfer, if you’re gifting $1000 worth of shares, then the a precise number of shares must be chosen to equate to $1000. As an example, we’ll use 20 shares worth $50 each.

The IRS says that the fair market value is equal to the average of the highest price and lowest price on the day of the transfer. So, if during the day of your donation, the shares trade at a high price of $51 and a low of $47, then the fair market value of all twenty shares is $980.

This $980 is the value that’s deductible when you file your taxes for the year. And that value of your donation holds true regardless of however much the charity ultimately sells the 20 shares for.

The lesson here is that even as you plan to gift securities and reap the tax benefits of doing so, the value you plan to donate won’t necessarily always match the exact value you can deduct on your taxes.

This scenario is often an area of confusion for people looking to gain the tax benefits of donating to charity. 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.

How Betterment Manages Your Tax-Deductible Donation

By making a donation of appreciated shares using Betterment, you’ll never have to handle the process of converting the amount you want to give into a certain number shares. That part works in the background.

Betterment also makes sure that you only donate appreciated shares that you’ve held for one year or more—which is advice that protects you from gifting shares away that have lost value or that you would not be able to deduct fully on your tax return.

In short, Betterment’s focus on charitable giving is part of helping you tax-optimize your investments. As Henry Ford once stated, “The highest use of capital is not to make more money, but to make money do more for the betterment of life.”

Betterment’s not a tax advisor, so as you make your charitable donations and look at how to properly claim deductions on your tax return, it’s best to consult a tax professional. For more information on Betterment’s charitable giving feature, check out the full explanation here.

Recommended Content

View All Resources
Using Investment Goals at Betterment

Using Investment Goals at Betterment

Goal-based investing. The idea is prized among financial advisors—and our team at Betterment—but to the everyday investor, it’s often difficult to put into practice.

Effective Altruism: Give Back the Way You Invest—Empirically.

Effective Altruism: Give Back the Way You Invest—Empirically.

Effective Altruism is the simple idea that you can increase the value you give to the world by more thoughtfully applying your resources.

Get All the Returns You Deserve

Get All the Returns You Deserve

We set out to make investing more efficient—and we have. With our platform, your investor returns can get a boost of 2.66%.

How would you like to get started?

Your first step toward a smarter investing future starts here.

Create a Betterment account

Go ahead and join the smart, modern way to invest.

Select an investing goal

Answer a few questions, and we'll recommend a portfolio for you.

See what we can do for you

Tell us a bit about yourself, and we'll show you the benefits of investing with us.

Get a free investing checkup

Help us get a sense of your investing approach and see how you could improve.

Transfer a 401(k) or an IRA

Move an existing retirement account into a Betterment IRA.

Download the mobile app

Enjoy the Betterment experience anywhere on the go.


Search our site

For more information and disclosures about the Betterment Resource Center, click here. | See our contributors.