Most people give to charity by writing checks or putting purchases on a credit card linked to a cause. It’s generous, simple, and tax-inefficient in ways that quietly cost both the donor and the charity money every year. If you have a brokerage account with positions held for more than a year that are worth more than you paid for them, donating those shares directly to a qualified nonprofit beats writing a check — often by a wide margin. The math isn’t subtle, and the IRS has explicitly encouraged it.
This isn’t an exotic strategy. It’s the default move financial advisors have been recommending to charitable clients for decades.
Why cash giving is the inefficient option
When you donate cash, you get a charitable deduction equal to the amount given (subject to AGI limits and the standard-versus-itemized question). That’s it. When you donate appreciated stock instead, two things happen. First, you still get a deduction for the full fair market value of the shares. Second, you avoid the capital gains tax you would have owed if you had sold the shares yourself. For long-term gains, that’s typically 15% or 20% federal, plus the 3.8% net investment income tax for higher earners, plus any state tax. On $10,000 of stock with a $2,000 cost basis, you’re saving roughly $1,500 to $2,000 in capital gains tax that would otherwise reduce what you have available to give. The charity, which is tax-exempt, receives the full $10,000 either way.
How to actually do it
Most charities of any size — universities, hospitals, large nonprofits, religious organizations — have a “stock gift” or “transfer of securities” page on their website with their broker’s DTC number and account information. You fill out a simple form, your broker initiates the transfer, and the charity sells the shares (tax-free) on their end. For smaller nonprofits that aren’t equipped to receive securities, a donor-advised fund is the workaround. You contribute appreciated stock to the DAF (Fidelity Charitable, Schwab Charitable, Vanguard Charitable, and others), take the deduction immediately, and grant cash to any qualified charity from the fund over time. DAFs have low minimums, modest fees, and have become the standard tool for tax-aware giving.
When it doesn’t work
This strategy only helps if you itemize deductions, which post-2017 means you need significant deductions to clear the higher standard deduction threshold. For donors near the threshold, “bunching” multiple years of giving into a single year via a DAF can flip you into itemizing for that year and standard deduction in others. The strategy also doesn’t apply to short-term holdings (less than a year), where the deduction is limited to your cost basis. And it doesn’t help if your appreciated positions are in a retirement account — those have their own rules, including qualified charitable distributions for IRA holders over 70 1/2, which are themselves an underused strategy.
The takeaway
If you’re going to give, give the assets the IRS taxes hardest. Cash is the worst-suited donation a long-term investor can make. Appreciated stock, ideally through a DAF, gets more money to the cause and less to the government — which is the entire point.
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