If you are looking to thin out your stock portfolio (including mutual funds), you might do very well to donate some of your holdings to charity. And if you have held the stocks for more than a year, and made gains on them, then you can not only deduct the fair market value of the stocks -- which is what they were worth on the day you donated them -- but you can also skip paying the 15% or more capital gains tax on the earnings you made while you held them. Not only that, but because the capital gains taxes won't get shaved off the value of your donation, you'll end up donating more, and thus have a higher income tax deduction.



However, if the stock has lost value while you've held it, then you would do better to sell it, get the tax deduction for the loss, and then donate the proceedings of the sale, as cash, to the charity. You have to have held the stock for at least a year in this case, too. If you've held the stocks for less than a year and then decide to donate them to a charity, they qualify only as "ordinary income property" and you could only deduct as much as you paid for them originally.

For the situation where the stock has increased in value and you've held it for over a year, here's how real numbers compare. In the first option, you donate the stocks as stocks to the charity. In the second column you donate the same value as cash, and in the third column you liquidate the stock and donate the proceeds of that sale to the charity as cash.

Let's say your original stock purchase was $1,000.

	You Donate the Stocks Directly to the Charity	You Donate $1,000 Cash	You Sell the Stock and Donate the Cash from the Sale
Original Value of Stocks When You Bought Them	$1000	$1000	$1000
15% Federal Capital Gains Tax	$0	$0	$150
3% State Capital Gains Tax	$0	$0	$30
Total Capital Gains Tax Paid	$0	$0	$180
After Tax Actual Donation	$1000	$1000	$820
Charitable Donation Tax Deduction	$1000	$1000	$820
15% Federal Capital Gains Tax Saved	$0	$0	$150
3% State Capital Gains Tax Saved	$0	$0	$30
Federal Income Tax Savings @ 28%	$280	$280	$230
State Income Tax Savings @ 6%	$60	$60	$49
Total Income Tax Savings	$340	$340	$279
Actual Cost to You for the Donation After Tax Savings	$660	$660	$721
Actual Value of Your Donation to the Charity	$1000	$1000	$820

Almost all the major charities accept stocks as donations and have programs set up that are ready and waiting for you to transfer the stock to them. Many of the smaller charities accept stock as well. In fact, after reviewing hundreds of charities across the United States to just to find the ones that accept cars, I'd have to say that about a third of the charities listed on Charity Navigator accept stocks as donations.