There’s nothing wrong with donating cash to your favorite charity. Seriously—it’s easy, fast, clean, and immediately impactful. Donors have been giving this most liquid asset to charities for centuries, and they’ll continue to do so for a long, long time.
If your employees want to be a little more creative, though, stock donations might be worth looking into. Donors get favorable tax treatment, charities can get more money than they would otherwise, and nobody has to pay any capital gains taxes right away.
The only problem is that, until very recently, donating stock to charities—especially through donor-advised funds—was a luxury reserved for the wealthy and well-connected. Keep reading to see how Groundswell has flattened that speed bump and made it easier than ever to donate stocks to charity.
Disclaimer: This blog post is for informational purposes only and should not be considered tax or financial advice. Please consult a qualified tax advisor or financial professional to understand how donating stock to charity may affect your individual situation.
From the donor’s perspective, one of the biggest benefits of donating stock—compared to donating cash—is the ability to avoid capital gains taxes. The beauty of stock donations is that donors can typically avoid both short-term and long-term capital gains taxes when donating appreciated securities directly to a qualified charity.
Here’s how capital gains tax avoidance works for stock donations:
Let’s say one of your fellow employees, Employee A, bought $1,000 worth of stock in Company ABC six years ago. The stock purchase was a wise one—today, the stock is worth $5,000. If the employee wanted to donate the stock to charity by selling the shares, they would have to pay capital gains tax on that $4,000 profit. Depending on the employee’s income, the capital gains tax rate might be up to 20 percent, or $800.
The net profit from the stock sale, $4,200, is still a substantial and meaningful donation. Donating stock directly to a charity, however, means the charity receives the full $5,000. Charities that are tax-exempt under the IRS can sell stocks without paying any capital gains tax.
Avoiding capital gains tax is not the only favorable tax treatment donors receive when donating stocks. Depending on how long the donor has held the stocks in question, they can either deduct the fair market value at the time of donation or, if they’ve held the stocks less than a year, the amount they originally paid for the stocks (cost basis).
You can thus maximize your donations by holding appreciated stocks for more than one year, all while avoiding capital gains taxes.
The deal gets even sweeter with donor-advised funds (DAFs). These unique giving vehicles allow donors to receive an immediate tax deduction when they contribute appreciated assets, like stock, but delay their decision on which charities to support.
Here’s how it works: When a donor contributes stock to a DAF, the IRS allows them to deduct the fair market value of the charitable stock donation. If the donor has held the stock for over a year, the IRS also allows them to avoid the capital gains tax on the stock gift. The stock is typically sold by the DAF sponsor or a third-party like Donate Stock, and the resulting funds are donated to the charity or invested in a portfolio that can continue to grow tax-free while the donor decides how and when to distribute grants to charities.
Let’s go back to our earlier example. Employee A donates $5,000 worth of appreciated stock to a DAF. Rather than directing it to a single charity right away, the funds can be invested within the DAF. Five years later, that $5,000 may have grown to $8,000. At that point, Employee A could choose to grant $5,000 to one nonprofit and $3,000 to another. That’s the beauty of DAFs—donors have flexibility and time to plan their giving strategically.
DAFs are becoming increasingly popular. In 2023, the total value of assets in DAFs reportedly surpassed $250 billion for the first time, driven in part by strong market performance. Grants from DAFs to charities reached nearly $55 billion, almost double the total from just four years earlier.
Now that you have a better understanding of how stock donations can benefit individuals, we can explain why your company can benefit from offering stock donation vehicles.
The simplest answer? Employees feel more engaged and are more likely to stay at a company if they feel their employer has a strong corporate social responsibility (CSR) presence. Offering easy-to-use DAF and CSR software is an effective way to show your employees that your company values charitable giving. Matching employees’ donations can only reinforce that commitment.
Gallup crunched the numbers a few years ago and found that having a substantial number of engaged employees boosts productivity by 18 percent and profitability by 23 percent.
Groundswell has made the process of donating stock via DAFs simple, efficient, and accessible.
Employees and employers can donate from any location on earth with Groundswell’s effective and intuitive mobile app. By staying connected to stock donation programs and other CSR initiatives, your deskless employees won’t feel left out of the loop!
Much like CSR programs in general, stock donations and donor-advised funds were only accessible to large companies and extremely wealthy individuals. Groundswell’s team had a problem with that and set out to build a platform that democratizes CSR.
We believe that anyone should be able to donate stock to their favorite charities easily and understand the tax benefits of doing so. Our easy-to-use software makes employee and corporate stock donation programs as simple as possible. Employees who understand how to donate through work can become more engaged, motivated, and satisfied.
Stock donations and donor-advised funds are far from the only CSR capabilities Groundswell offers. The best way to find out how our software can benefit your business is by booking a demo with our team.
