I wanted to mess around with this app called Robbinhood that lets you trade commission free. I decided to demo it for a year before I put any substantial amounts in it.

I put $100 in the account in January and after making a series of trades I am up to $112. I plan on continue trading for the rest of the year.

My question is, I intend on donating the initial investment and all of the proceeds to charity in December. If I donate everything, do I get to write off the taxes on gains from each trade?


If the charity accepts stock, you can avoid the tax on the long term cap gain when you donate it. e.g. I donate $10,000 in value of Apple. I write off $10,000 on my taxes, and benefit with a $2500 refund. If I sold it, I'd have nearly a $1500 tax bill (bought long enough ago, the basis is sub $100).

Any trading along the way, and it's on you. Gains long or short are taxed on you. It's only the final donation that matters here.

Edit - to address Anthony's comment on other answer - I sell my Apple, with a near $10,000 gain (it's really just $9900) and I am taxed $1500. Now I have $8500 cash I donate and get $2125 back in a tax refund. By donating the stock I am ahead nearly $375, and the charity, $1500.

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  • ehhh that sucks. Guess they are going to get the initial investment + gains - taxes lol – Anthony Russell Mar 25 '16 at 13:21

I don't understand the logic in the other answer, and I think it doesn't make sense, so here is my take:

You pay taxes on income, not on sales price. So if you put X $ of your own money in the account and it becomes X + Y $ in the future, at the moment of liquidation, you will own taxes on the Y $. Never on the X $, as it was your own (already taxed) money to begin with. The difference between long-term and short-term gains just influences the tax rate on Y.

If you donate the gain alone (the Y $) to charity, you can deduct Y from your tax base. So adding Y to your tax base and then deducting Y again obviously leaves your tax base at the old value, so you pay no extra taxes. Which seems logical, as you didn't make any money in the process.

Aside from extreme cases where the deductible gain is too large a percentage from your income or negative, I don't see why this would ever be different.

So you can take your original 100 $ back out and donate all gains, and be fine.

Note that potential losses are seen different, as the IRA regulations are not symmetric.

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  • If you donate the stock (without selling it), you get a deduction of X+Y without recognizing any income and therefore paying no tax on it. If you sell, you get the deduction of X+Y also (assuming you donate gains and the initial investment), but you have to pay tax on the income of Y. That was the point made by @JoeTaxpayer. – user32479 Mar 25 '16 at 16:59
  • I think I understand it now better. Thanks, @Brick. I guess I then missed the point a bit. – Aganju Mar 25 '16 at 17:01
  • So if I don't sell the stock I get to deduct the unrealized gains without claiming it as income but if I sell the stock then I have to claim the gains on a tax return but I can deduct them? – Anthony Russell Mar 25 '16 at 17:32
  • Right. The part that Aganju seemed to miss was that my example was an extreme exaggeration. Few stocks go up 100 fold. I used that example to make a point. The donation of appreciated stock saves you from the tax on the gain, large or small. – JTP - Apologise to Monica Mar 27 '16 at 15:21

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