When people in New York want to support a charity, most think of donating cash. But giving stock that grew in value can be a smart way to support a cause while also lowering your taxes.
Why giving stock can lower taxes
Here’s the main benefit: If you own stock that is worth much more than you paid for it, selling it creates a capital gain. You must pay taxes on that gain. If you sell the stock first and then donate the cash, you lose part of your money to taxes before the charity receives anything.
But if you donate the stock directly to the charity, you avoid paying the capital gains tax. The charity receives the full value of the stock.
However, New Yorkers need to know one more detail. Many people think they can also take a deduction on their New York state income taxes. Most New Yorkers cannot. New York allows a charitable deduction only when you itemize your return. Since most people now use the standard deduction, they do not receive this second tax break.
When this strategy makes the most sense
People often choose this method when making a significant gift. It can also help when you already plan to rebalance your investments. Instead of selling the stock and paying tax, you can gift it directly.
A smart way to plan your giving
Donating stock is about more than generosity. It can be part of smart financial planning. Because the rules in New York are specific, it may help to talk with a tax professional who can guide you toward the best strategy for your goals.