Donating stocks can be a good idea or bad idea. It’s a good idea if the stocks of increased in value since you bought them. But if they have lost value since you bought them, you’d do better to sell them and then donate the proceeds of the sale to a charity. That’s because the IRS will allow you to skip paying capital gains tax if you donate stocks directly to a charity, but only under special conditions.

Let’s start with the scenario where the stocks have gained value since you bought them. Let’s also assume that you have held these stocks for a year or more, which is the minimum time requirement to get the tax benefits. If you donate the stocks directly to a charity, you can deduct the fair market value of the stocks on the day you donated them — i.e., what you would get for them if you sold them or liquidated them. You can also skip paying the 15% or more capital gains tax that you would have had to pay on their increased value if you sold them.

This is a double benefit, because your income tax deduction will Inkind Donations be 15% more as a result of not having to pay the capital gains tax. This is why donating stocks directly to a charity is a double win, and a better choice than selling the stocks and donating the proceeds of the sale to the charity, but only if the stocks have increased in value after you bought them and you have held them for a year or more.

If the stocks you bought more than a year ago have lost value while you’ve held them, you will do better tax-wise if you sell them and then donate the proceeds of the sale to the charity. This is because you can deduct some of the losses on the stocks on your income tax return. So you win here as well, but in this situation it is much better to sell the stocks and then donate the proceeds, rather than donating the stocks directly to the charity.

There is more good news. It is surprising how many charities accept stock donations these days, and, of course, mutual funds also count as stocks. About 20% of the charities across the United States are accepting stocks/equities as one of the in kind donations they will take. So if you would rather not write a check to a charity this year, and have a few stocks in your portfolio that you would like to weed out (and skip the capital gains tax on), then it’s time to head to check the websites of your favorite charities to see which one should get the dividends of your kindness.