If you are giving to your church, synagogue, mosque, or religious charity and you own stocks that have grown significantly, you are probably overpaying in taxes. The simple fix is to donate the appreciated stock directly instead of selling it and giving cash. The tax savings can be thousands of dollars per year on large gifts, and it costs you nothing to do.

Here is exactly how it works, with real numbers.

The Basic Tax Math

When you sell a stock at a profit, you owe capital gains tax on the gain. The rate depends on how long you held it and your income:

Held less than 1 year: taxed as ordinary income (up to 37% federal plus state)
Held more than 1 year: long-term capital gains, 0% / 15% / 20% depending on income
State tax varies, from 0% in states like Florida and Texas to over 13% in California

If you sell a $10,000 stock with a $3,000 cost basis, you have a $7,000 gain. At the 15% federal long-term capital gains rate, you owe $1,050 in federal tax. Add 5% state tax and the total tax bill on that sale is around $1,400.

You then give the remaining $8,600 to your church, and you get a charitable deduction for $8,600. If you are in the 24% marginal federal income tax bracket, that deduction saves you $2,064 on your income tax. Net cost to you: $10,000 - $2,064 + $1,400 = $9,336.

Now compare that to donating the stock directly.

The Donate-Directly Math

If instead you transfer the $10,000 of stock directly to the charity:

You owe zero capital gains tax because you never sold the stock
The charity receives the full $10,000 worth of stock, which they can sell tax-free (charities are tax-exempt)
You get a charitable deduction for the full $10,000 fair market value
The deduction saves you $2,400 at the 24% federal tax bracket

Net cost to you: $10,000 - $2,400 = $7,600
Net value to the charity: $10,000

Compare to the sell-first method: you paid $9,336, the charity got $8,600.

The direct donation saves you roughly $1,736 ($9,336 - $7,600) AND gives the charity $1,400 more.

It is strictly better for both parties. The only people worse off are the IRS and your state tax agency, who do not collect the capital gains tax.

Who Should Actually Do This

This strategy helps you if:

You own stocks with significant gains (the bigger the gain, the bigger the savings)
You already plan to give the money to charity
You itemize deductions on your taxes OR the gift pushes you into itemizing

If you give less than the standard deduction, the charitable deduction does not help you at the federal level. In that case, you might not get the full benefit of the direct donation strategy.

For 2026, the standard deduction is around $15,000 single and $30,000 married filing jointly. If your total itemized deductions (including mortgage interest, state tax, and charitable gifts) exceed those thresholds, you benefit from itemizing.

What Qualifies

To get the full benefit, the stock must be:

Held more than 1 year (long-term capital gains qualify, short-term does not get the full benefit)
Have unrealized gains (if it is at a loss, you should sell it first to capture the loss, then give cash)
Given to a qualified 501(c)(3) public charity (most churches, synagogues, mosques, and religious nonprofits qualify automatically)

Private foundations get a slightly less favorable treatment, but most direct church giving is to public charities.

How to Actually Do the Transfer

Step 1: Pick the specific shares to donate

If you have a stock at multiple cost bases (bought at different times), specify which shares you are giving. Give the shares with the lowest cost basis to maximize the tax benefit. Your broker can identify specific lots.

Step 2: Contact the charity

Ask if they have a brokerage account that can receive stock donations. Most churches and established nonprofits do. They will give you:

Their brokerage firm name (often Fidelity, Schwab, Merrill Lynch, or similar)
Their account number
A DTC transfer number (the internal code brokers use to move securities)
A contact name to notify when the transfer is initiated

If your church does not have a brokerage account, they may use a donor-advised fund or a third-party service like iDonate or Cocatalyst that accepts stock on behalf of charities and remits cash. Check with your church before assuming.

Step 3: Initiate the transfer from your brokerage

Log into your broker (Fidelity, Schwab, Vanguard, whoever) and look for "Gift to Charity" or "Transfer Securities Out" or "Charitable Contribution." Fill in the receiving charity's information. Most brokers process this within 5 to 10 business days.

Step 4: Notify the charity

Email the charity's finance contact with:

The stock ticker and number of shares being transferred
The approximate value
The expected transfer date
Your name as donor

This helps them match the incoming transfer to you when it arrives. Without the notification, charities sometimes cannot identify who sent a mystery gift.

Step 5: Get your receipt

The charity should send you a receipt that includes:

The number of shares
The stock ticker
The date of transfer
The fair market value on that date (calculated as the average of high and low trading prices)
Confirmation that no goods or services were received in exchange

Keep this receipt. You will need it for your tax return.

Step 6: Report on your taxes

You report the donation on Schedule A (itemized deductions). For gifts over $500 of non-cash property, you also file Form 8283. For gifts over $5,000, you need a qualified appraisal for non-publicly traded securities (not an issue for regular stocks).

Worked Example: The Thompson Tithe

Greg and Jennifer Thompson tithe $18,000 a year to their church. Their salary is $180,000 and they itemize their taxes.

Over the past five years, Greg bought shares of an index fund that has grown substantially. He now holds $85,000 worth of shares with a cost basis of $35,000. The unrealized gain is $50,000.

Option A: Give $18,000 cash from checking
- Total cost to Greg and Jennifer: $18,000 (minus $4,320 tax savings at 24% = $13,680 net)
- Capital gain realized: $0
- Future tax bill on the $50,000 gain: deferred but still coming

Option B: Donate $18,000 of the appreciated stock directly
- Stock donated: $18,000 worth of shares (containing roughly $10,600 of embedded gain)
- Capital gain avoided: $10,600 × 15% federal + 5% state = $2,120 saved
- Charitable deduction: $18,000 × 24% = $4,320 saved
- Total tax benefit: $6,440
- Net cost to Greg and Jennifer: $18,000 - $6,440 = $11,560

The direct donation saves them $2,120 in capital gains tax versus the cash method. Over 20 years of giving $18,000 annually in appreciated stock, that is roughly $42,400 in tax savings.

Meanwhile, the church receives the same $18,000 either way. But Greg and Jennifer can now take the $18,000 of cash they would have given and buy replacement stock, which effectively resets their cost basis higher. Long-term they pay less tax on the same wealth.

The Year-End Deadline

Charitable stock donations must be completed by December 31 to count for that tax year. "Completed" means the stock has been received by the charity's brokerage account, not just initiated. Transfers can take 5 to 10 business days. Start the process in early December at the latest, ideally mid-November, to avoid year-end backups at your broker.

Every year I see people try to transfer stock on December 28 and get stuck because the transfer does not settle until January, pushing the deduction into the next year. Plan ahead.

What If the Stock Is in a 401(k) or IRA?

Retirement accounts are different. You generally cannot donate stock directly out of a 401(k) or IRA and get the same tax treatment. The exception is a Qualified Charitable Distribution (QCD) from an IRA, which applies only if you are 70½ or older. A QCD allows you to send up to $105,000 directly from your IRA to charity without it counting as taxable income.

If you are under 70½ and want to donate stock, use your taxable brokerage account, not your retirement account.

Donor-Advised Funds: The Batch Approach

If you give to multiple charities or want to bunch gifts into specific tax years, consider a donor-advised fund (DAF). You transfer appreciated stock to the DAF in one year, get the full deduction, and then recommend grants to individual charities over subsequent years.

Example: You normally give $6,000 a year to charities. Your standard deduction is $30,000 (married filing jointly). In a normal year, you cannot itemize because $6,000 is not enough.

Instead, donate $30,000 of appreciated stock to a DAF every 5 years. In that year, you itemize and take the full deduction. In other years, you take the standard deduction. The DAF continues to distribute your normal $6,000 per year to charities out of the accumulated balance.

This "bunching" strategy captures the deduction in optimal years and works especially well with the direct stock donation method.

Common Mistakes

Selling the stock first and then donating cash, which triggers the capital gains tax. Waiting until December 28 and missing the year-end settlement. Not specifying which lots of stock you are giving, defaulting to FIFO (first in first out) which may not maximize the tax benefit. Giving stock that is at a loss instead of selling it first. Not getting a proper receipt from the charity. Missing Form 8283 on gifts over $500.

Your Next Steps

Review your taxable brokerage account for stocks held more than one year with significant unrealized gains. Calculate your planned charitable giving for the year. Contact your top charities and ask if they accept stock donations (most do). Initiate the transfer at least 3 weeks before year-end if you want the deduction for this tax year. Consider a DAF if you give substantial amounts to multiple organizations.

Donating appreciated stock is not an exotic tax strategy. It is the boring standard practice among tax-aware givers. If you are not doing it, you are leaving real money on the table.

Donating Appreciated Stock to Faith-Based Charities: The Tax Math