Don't Sell Stock to Donate

When you sell stock [1] you pay capital gains tax, but there’s no tax if you donate the stock directly. Under a bunch of assumptions, someone donating $10k could likely increase their donations by ~$1k by donating stock. This applies to all 501(c) organizations, such as regular 501(c)3 non-profits, but also 501(c)4s such as advocacy groups.

In the US, when something becomes more valuable and you sell it you need to pay tax proportional to the gains. [2] This gets complicated based on how much other income you have (which determines your tax bracket for marginal income), how long you’ve held it (which determines whether this is long-term vs short-term capital gains), and where you live (many states and some municipalities add additional tax). Some example cases:

• A single person in Boston with other income of $100k who had $10k in long-term capital gains would pay $2,000 (20%). This is 15% in federal tax and 5% in MA tax.

• A couple in SF with other income of $200k who had $10k in long-term capital gains would pay $2,810 (28%). This is 15% in federal tax, 3.8% for the NIIT surcharge, and 9.3% in CA taxes.

• A single person in NYC with other income of $600k who had $10k in short-term capital gains would pay $4,953 (50%). This is 35% in federal tax, 3.8% for the NIIT surcharge, 6.9% in NY taxes, and 3.9% in NYC taxes.

When you donate stock to a 501(c), however, you don’t pay this tax. This lets you potentially donate a lot more!

Some things to pay attention to:

• Donations to political campaigns are treated as if you sold the stock and donated the money.

• If you’ve held the stock over a year and are donating to a 501(c)3 (or a few other less common ones like a 501(c)13 or a 501(c)19) then you can take a tax deduction of the full fair market value of the stock. This is bizarre to me (why can you deduct as if you had sold it and donated the money, when if you had gone that route you’d have needed to pay tax on the gains) but since it exists it’s great to take advantage of.

• This only applies if it’s a real donation. If you’re getting a benefit (ex: “donating” to a 501(c)3 but getting a ticket to an event) that’s not a real gift and doesn’t fully count.

• If you’re giving to a person, you don’t pay capital gains, but they get your cost basis (with some caveats). When they sell they’ll pay capital gains tax, which might be more or less than you would have paid depending on your relative financial situations. If they’re likely to want to make a gift to charity, though, it’s much more efficient to give them the stock.

• The actual logistics of donating stock are a pain. If you’re giving to a 501(c)3 it’s generally going to be logistically easier to transfer the stock to a donor-advised fund (I use Vanguard Charitable because it integrates well with Vanguard), which can then make grants to the charity. This also has a bonus of letting you pick the charity later if you want to squeeze this in for 2025 but haven’t made up your mind yet.

[1] I say “stock” throughout, but this applies to almost any kind of asset.

[2] Note that “gains” here aren’t just the real gains from your stock becoming more valuable, but also include inflation. For example, if you bought $10k in stock five years ago ($12.5k in 2025 dollars) and sold it today for $12.5k in 2025 dollars, you’d have “gains” of $2,500 even though all that’s actually happened is that the 2025 dollars you received are less valuable than 2020 dollars you spent.