From my experience, many physicians are charitable inclined. If you're one of them, you can use appreciated stocks to donate more money by avoiding capital gains taxes, and you might be eligible for an additional deduction.
1. Avoid Capital Gains Taxes. When you donate stocks that went up in value (as opposed to selling the stock, paying capital gains and then donating the cash) you get to donate the full amount because you don't have to pay capital gains taxes. If you live in MA, every time you sell stock that you held for more than one year you're likely to pay 28.3% on capital gains between federal taxes, state taxes, and Medicare surtax. If you held your stock for less than a year before you sold it you'll be paying around 40%.
Let's say you own Apple stock worth $20,000 and half of that ($10,000) is capital gains. If you sell all your Apple Stock you'll pay capital gains on $10,000, i.e., $2,830 in taxes. The rest ($17,170) would be available for you to donate. On the other hand, if you donate your Apple Stock directly without selling it first, you'll be able to donate $20,000. That's $2,830 more that goes to your favorite charity.
2. Itemized deductions. Gifts to charity is one of the itemized deductions. The other ones are: certain medical expenses, state and local taxes (SALT), and mortgage interest. They all have rules on how they're calculated. If the sum of all of them is higher than the standard deduction, you get to itemize deductions (keep in mind that this might be different if you're married filing separately).
If you itemize deductions, donations increase your deductions. If you don't itemize, donating might help you qualify to itemize deductions. Itemizing deduction means that you get a deduction higher than the standard that everybody gets. To get the full deduction, the value of the donation has to be lower than 30% of your income.
And if you can and want to increase the tax deduction but you're not ready to donate the full amount this year you can set up a donor advised fund (DAF) and donate to your DAF. You'll get the deduction the year you contribute to the DAF and you can give your money away for anytime for any amount.
If you have any observations and/or questions you can reach me through www.
Marcos
These are hypothetical situations based on real life examples. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.