Donating stock to charity is one of the most tax-efficient ways to support the causes you care about while reducing your tax burden. For tech professionals with significant equity holdings, this strategy offers a unique opportunity to make a meaningful impact without liquidating assets. However, common mistakes can diminish the benefits, create unexpected tax liabilities, or lead to missed opportunities. Here’s how to navigate the complexities of donating stock and maximize the impact of your generosity.

Can I Donate Stock to Charity? Why Stock Donations Are a Good Idea 

Yes – donating stock to charity is definitely an option and one that can benefit you greatly tax-wise. 

Donating appreciated stock directly to charity offers two significant tax advantages:

1. Avoiding Capital Gains Taxes: When you donate stock that has increased in value, you avoid paying capital gains taxes on the appreciation, which can save up to 20% in federal taxes (plus applicable state taxes).
2. Claiming a Charitable Deduction: You can deduct the stock’s full fair market value at the time of donation, provided you’ve held it for more than a year.

These benefits often make stock donations a smarter choice than giving cash. However, to fully realize these advantages, you need to avoid some common pitfalls.

Common Stock Donation Mistakes To Avoid When Making Charitable Contributions

Selling the Stock Before Donating

Selling appreciated stock before donating the cash proceeds triggers capital gains taxes, reducing the overall tax efficiency of your gift.

Better Approach: Donate the stock directly to the charity. This allows you to bypass capital gains taxes while still claiming the full deduction for the stock’s fair market value.

Relying Solely on Donor-Advised Funds (DAFs)

Donor-advised funds (DAFs) are a popular tool for streamlining charitable giving and maximizing tax benefits. They allow you to donate appreciated stock, receive an immediate tax deduction, and distribute funds to charities over time.

However, DAFs come with significant drawbacks:

• Loss of Control: Once assets are donated, the sponsoring organization has the final say on how and when the funds are distributed.
• Delays in Distribution: Funds may not reach charities immediately, delaying the impact of your gift.
• Transparency Issues: Some sponsoring organizations lack clarity about their processes.
• Management Fees: Ongoing fees can reduce the overall amount available for charitable purposes.
• Restrictions on Causes: DAF sponsors may impose limitations, preventing you from directing funds to specific causes or charities.

While DAFs offer convenience and tax benefits, it’s important to weigh these trade-offs. 

Better Approach: If maintaining control over your donations is critical, consider donating stock directly to your chosen charities instead.

Donating Depreciated Stock

Donating stock that has lost value may seem generous, but it’s not tax-efficient. You miss the opportunity to realize a capital loss.

Better Approach:  Sell the depreciated stock first to capture the loss, which can offset other gains or taxable income. Then donate the cash proceeds to the charity.

 

What Are the IRS Rules for Stock Donations? Know Before You Give 

Before making a charitable contribution, there are a few IRS rules around stock donations that you need to understand. 

• Stocks Held for Over One Year: You can deduct the full fair market value.
• Stocks Held for One Year or Less: The deduction is limited to the cost basis (what you paid for the stock).

Better Approach: Only donate long-term holdings to maximize your tax deduction.

Failing to Seek Professional Guidance

Charitable giving, especially involving equity compensation, requires careful planning. Many donors miss key strategies or make costly errors by attempting to manage the process alone.

Better Approach: Work with a financial advisor who specializes in equity compensation and charitable giving. 

They can help you:

• Identify the best assets to donate.
• Navigate tax implications.
• Coordinate with charities to ensure a seamless transfer.

Best Practices for Strategic Stock Donations

To ensure your donations have maximum impact, follow these best practices:

Choose the Right Assets

Focus on stocks with significant unrealized gains and long-term holding periods.

Assess Your Giving Tools

Decide whether a DAF or direct donation aligns with your goals.

Plan Around Taxes

Donate in high-income years to maximize the value of your charitable deduction. How much can you deduct for donations? The IRS allows you to deduct up to 30% of your adjusted gross income for stock donations to qualified charities.

Coordinate with Charities

Confirm that your chosen charity accepts stock donations and has the necessary brokerage accounts.

Maintain Detailed Records

Keep documentation of the stock’s value, transfer dates, and correspondence with the charity or fund sponsor.

Maximizing Your Charitable Contributions in 2025

Appreciated stock donations is a powerful way to support causes you care about while enjoying substantial tax benefits. However, it’s essential to avoid common mistakes, such as triggering unnecessary capital gains taxes or overlooking the limitations of donor-advised funds.

For tech professionals, incorporating charitable giving into your financial plan can provide both personal fulfillment and financial advantages. Consulting a financial advisor can help ensure your strategy is tailored to your unique goals, enabling you to make the most of your generosity.

Book a call with our team to learn how Family Legacy Financial Services can help you navigate stock donation the safe, smart way.