Is It Better to Donate Stock or Cash to Help My Favorite Cause?

Overview:  

You want your gift to matter. Here is the quick take. 

• -If you have long-term appreciated stock, gifting shares often lets you deduct market value and avoid capital gains. 
  
• -Nonprofits that are ready to accept stock can sell without capital gains tax, so more of your gift supports the mission. 
• -Cash is best when timing is urgent, shares are short term or down, or the nonprofit is not set up for stock. 

If you have held the shares for more than a year and they have gone up in value, donating stock usually does more. You can deduct the market value of the shares within your annual income limits, and you do not realize a capital gain. When you give to a 501(c)(3) public charity, it can sell the shares without capital gains tax. The timing of the sale may change the price the charity receives, not the tax. Some charities keep gifted stock if they do not need cash right away, which adds market risk and should fit their investment policy. Cash is always welcome. This is about getting more good from the same dollars. 

At a glance 

• Donate stock: deduct fair market value within limits and avoid capital gains 
• Sell then give cash: pay capital gains first, which leaves less to give 
  

How does donating appreciated stock lower my taxes? 

Two levers work together. First is the tax deduction. If you donate long-term publicly traded stock to a qualified charity, your charitable deduction is generally the stock’s market price on the gift date, not what you paid. Second is the avoided tax. Because you are gifting the shares instead of selling them, there is no capital gain for you. Those two levers, deduct and avoid, are what make stock powerful. 

When is cash better than donating stock for me and for the nonprofit? 

There are moments when cash is the cleaner, stronger choice for both sides. For you, cash often wins if the shares are short term, which means you have held them a year or less, because your deduction would be limited to what you paid. Cash can also be better when the shares are below your cost. In that case, it is usually smarter to sell, claim the capital loss, and then donate the cash. If you will not itemize this year, or you have already hit your percentage limits for gifts of appreciated property, a cash gift keeps things simple. Complex holdings like private, restricted, or partnership units can introduce extra steps and delays, so cash can spare you the friction. If it’s near the end of the year and you want to be sure your donation is received on time, cash is a faster gifting process. 

For the nonprofit, cash is best when bills are due soon or a program deadline is days away. Some organizations are not set up to accept stock quickly, so cash prevents processing delays and market risk. Thinly traded or restricted shares can be hard to sell and may create extra administrative work. If the gift is small and fees would nibble at the value, or if an employer match requires cash, sending cash can increase what the charity ultimately receives. 

Can a donor advised fund (DAF) make this easier? 

Yes. A donor advised fund, or DAF, lets you contribute appreciated stock now, take the deduction this year, and recommend grants over time to one or many nonprofits. A DAF is also useful if you want to bunch several years of giving into one tax year so itemizing makes sense. 

How do Massachusetts taxes change the calculation? 

If you file in Massachusetts, the same stock gift can go even further. The state allows a charitable deduction that generally follows federal rules, even when you do not itemize on your federal return. Donating appreciated shares also means you are not realizing a Massachusetts capital gain. Long-term gains are taxed at 5% and short-term gains at 8.5%. In very high income years, avoiding a large gain can also help manage the 4% surtax that applies over a set income threshold. Contributions to a DAF generally qualify for the Massachusetts deduction under similar rules. Keep your records, and if you file federal Form 8283 include it in your Massachusetts file as well. 

What paperwork should I expect? 

There is not much. If your non-cash gifts exceed $500, your federal return includes Form 8283. For any gift of $250 or more, the nonprofit should give you a written acknowledgment that lists what you gave and the date. Publicly traded stock does not need an appraisal.  

What are my next steps if I am considering a stock gift this year? 

• Identify shares with the largest gains that you have held more than a year 

• Decide whether to give directly to a nonprofit or to a donor advised fund 

• Get the transfer instructions and start the move early, especially in December 

• Save the acknowledgment letter and Form 8283 if required 
  

Summary 

Most people give because they care, not for tax reasons. Donating long term appreciated stock simply lets you do more good with the same gift. In Massachusetts, the state deduction and capital gains savings can make the advantage even stronger. If you are considering a stock donation this year, we will walk you through it with no judgment and no jargon so you can feel confident about both the impact and the paperwork.  

Let’s talk about the best approach for your goals and your taxes. Plan Today. Realize Tomorrow. 

Disclaimer: Action plans and results are shown for illustrative purposes only, are not indicative of any specific Sachetta client, and will vary based on each client’s individual circumstances and objectives. 

Frequently Asked Questions:

1. Do I still get a tax deduction if I donate stock instead of cash?
   Yes. If you donate long-term publicly traded stock to a qualified 501(c)(3) charity, you can generally deduct the market value of the shares on the date of the gift, within your annual income limits. You also avoid paying capital gains tax on the appreciation.
2. What happens if I donate stock I’ve owned for less than a year?
   If the stock is short-term—owned for one year or less—your deduction is limited to what you paid for it (your cost basis), not the current market value. In that case, a cash gift may be the better option.
3. Does the charity have to sell the stock right away to avoid taxes?
   No. A 501(c)(3) public charity can sell donated stock at any time without paying capital gains tax. The timing of the sale affects how much cash they receive, not whether tax is owed.
4. How does donating stock affect my Massachusetts taxes?
   Massachusetts allows a charitable deduction that generally follows federal rules, even if you don’t itemize federally. You also avoid state capital gains tax, and high-income taxpayers may reduce exposure to the surtax on income over the state threshold.
5. How do I make sure my stock donation counts for this tax year?
   The transfer must be completed by December 31. Start early—at least a week or two before year-end—because brokerage transfers can take several business days. Keep the acknowledgment letter from the nonprofit and Form 8283 (if required) with your tax records.

About the Author

Cailin Suvarna, received her Bachelor's Degree from Merrimack College. Since graduating college, she has worked in public accounting with a focus on high net worth individuals. Her favorite part about working as an Accountant is tax planning and being able to advise clients. Since joining Sachetta, Cailin has mainly worked on tax projections and will continue with tax compliance.