stock donations betterment

The holidays are nearly upon us, and, with markets near all-time highs, investors have a lot to be thankful for. It’s the season for giving thanks, recognizing good fortune, and giving back to those who are most in need.

Many Betterment customers make generous gifts to charity during holiday season—whether via credit card, at a fundraiser, or online. But what you might not know is that because you invest in securities, you have more than one good reason to consider making charitable donations using your investments—and you should consider doing so before the year’s end.

The wealthiest donors have long realized the tax-saving benefits of donating their invested assets, but most taxpayers who invest can benefit from using their investments to maximize the impact of their donations each year.

Today, Betterment is proud to announce that all Betterment customers with appreciated shares will be able to donate long-term investments from their taxable accounts. This feature is one that Betterment is particularly excited to offer customers; not only is it in line with our focus on helping customers optimize their portfolio for taxes, but it’s also part of our deep commitment to giving every investor the high-quality advice that has traditionally only been offered to high-net-worth investors.

Before you sell an investment or pull out your credit card to make a donation, consider a smart giving strategy that can help you maximize your gifts.

Gifting securities helps maximize your charitable impact.

When you’re an investor, there are two tax advantages you get when you make a charitable donation:

  1. Eliminating capital gains tax on donated shares
  2. Deducting the value of the gift on your tax return

When you donate securities, the value of those assets is transferred to the charity. You, the donor, don’t pay taxes on the gain, and the recipient organization generally doesn’t pay taxes on the gain either.

Then, as long as you itemize your deductions, the whole value of your donated securities is deductible on your income taxes, just like any cash donation would be, as long as you’ve held the securities for more than one year. So, in effect, donating your investments can help you maximize your total philanthropic impact year-to-year.

As an example, let’s say you make $150,000, are single and live in New York. Your income places you into the current (2017) 15% long-term capital gains bracket, the 28% federal bracket, and the 6.65% state bracket. If you donate $3,000 worth of shares to a charitable organization, and you bought those shares two years ago for $2,100, then you would save $194.85 in capital gains taxes, and the full $3,000 could be deducted on your tax return, saving you $1,039.50. Overall, you save about 19% more in taxes.

Value now Purchase value, two years ago Capital gains tax saved Deductible amount on tax return Total potential tax savings
When you plan to donate shares $3,000 $2,100 $194.85 $3,000 $1,234.50
This is 19% more than a cash donation.
When you plan to donate cash $3,000 n/a n/a $3,000 $1,039.50

Table 1. The table above assumes the following about the hypothetical person donating to a charity: (1) The person itemizes the deductions on their tax return. (2) The federal Alternative Minimum Tax does not apply to the person.

Betterment believes donating securities should be as easy as donating cash.

Given all the tax benefits, the only logical reason why so many people exclusively donate cash to charity is because giving cash has long been far easier than donating invested assets. Even after the rise of online brokerages like Fidelity and E*Trade, the process for making stock gifts is often a hassle, very time-intensive, and thus only done by the wealthiest investors.

Betterment is changing that. We want to make it delightfully easy to see the benefits of a donation of shares and to transfer your shares to a charity. We believe you shouldn’t have to do any math or sign any forms. No snail mail, and no walking into an office.

We want to make giving securities as easy as giving cash. When you give shares, you can then use the extra tax savings for future donations, helping to further maximize your impact.

Betterment enables straightforward, easy-to-accomplish charitable giving by doing four main things behind the scenes.

  • On your behalf, we track how much of your account is eligible to give to charity. You typically should only donate assets that you’ve held for more than one year, but we don’t expect you to sort through all the assets and pick which ones you can give. Tracking those assets is part of our service.
  • We estimate the tax benefits of your gift. Before you complete your gift, we’ll let you know the estimated tax benefits, including the expected deductible amount and potential capital gains taxes saved.
  • We move assets from your account to a charitable organization’s account without any paperwork. With a traditional broker, a charitable gift has to move from your account to the organization’s brokerage account, which can take time and paperwork. Betterment is offering charities investment accounts at no-charge (on up to $1 million of assets) to make the gift process seamless.
  • After the donation is complete, we provide a tax receipt. The receipt is emailed to you, and it will also available in your Betterment account at all times. What’s more, we take much of the heavy lifting in reporting off of our partner charities. This means they can devote their resources more efficiently to the causes you are supporting, rather than to administrative tasks.

Charitable giving works in tandem with our other tax strategies.

Betterment’s charitable giving service automatically works in tandem with Betterment’s other tax strategies. Here’s an example of how the service works with Tax Loss Harvesting+.

Imagine you started using Betterment two years ago. If any holdings in your portfolio took a loss in the first year, Betterment’s Tax Loss Harvesting+ would save you taxes that year by providing you with a tax deduction on securities’ losses and deferring the payment of tax to the future.

If by the calendar year after the harvest, those same shares appreciated above the purchase price, then they would be eligible to give to charity. You could then avoid the tax altogether by avoiding the capital gains tax you would otherwise be subject to.

Our service for donating shares to charity is part of a closed-loop approach to tax optimization that we strive to offer every customer at Betterment.

Give with Betterment and keep your goals on track.

Charitable GivingOnce you give shares through Betterment, you’ll find that your account will no longer have some of its appreciated shares and the overall account balance will be lower. Immediately after you give, we will ask if you want to make a new deposit to replenish your investment.

By redepositing, we can rebalance your account and help keep it on track to meet its goal. If you think of your redeposit as the cash you otherwise would have given to charity, the process of giving and then redepositing ends up serving as a tax-optimized and cost-efficient way of transferring funds to charity.

If you do not redeposit after giving, your account balance will, of course, remain lower, and we may rebalance your account as usual.

The illustration to the right is for illustrative purposes only.

How to Make a Charitable Gift in Your Betterment Account

To make a charitable gift from your Betterment account, simply navigate to the Transfer tab and select “Give to Charity.”

If your account has appreciated shares held for more than a year, you can specify an amount to give and select which charitable organization(s) will receive your donation. Shortly after the transfer completes, you’ll receive a tax receipt.

As we launch this new feature of Betterment, we’re partnering with a selection of charities, but we’re dedicated to adding new charities in the future. As we initiate the service, you’ll be able to choose from the following charities:

If you don’t currently see a charity you’d like to donate to, you can request a new charity be added to Betterment by navigating to the “Give to charity” option in the “Transfer” tab of your account. Where you’re instructed to select a charity, there is an option to request a new one at the bottom of the page. In time, we will work with the requested charities to add them to the service.

1 See IRS Information for Charitable Contributions