If I donate depreciated stock to charity, can I deduct both the market value and the capital loss?
No. You should only donate appreciated stock. If you own a stock at a loss, you can only deduct the FMV (fair market value) when you donate. Instead, you should sell it, take the loss on your taxes, and donate the cash. No, it doesn't work like this. Your charitable contribution is limited to the FMV. In your scenario your charitable contribution is limited by the FMV, i.e.: you can only deduct the worth of the stocks. It would be to your advantage to sell the stocks and donate cash. Had your stock appreciated, you may be required to either deduct the appreciation amount from the donation deduction or pay capital gains tax (increasing your basis to the FMV), depending on the nature of your donation. In many cases - you may be able to deduct the whole value of the appreciated stock without paying capital gains. Read the link below for more details and exceptions. In this scenario, it is probably more beneficial to donate the stock (even if required to pay the capital gains tax), instead of selling and donating cash (which will always trigger the capital gains tax). Exceptions.   However, in certain situations, you must reduce the fair   market value by any amount that would have been long-term capital gain   if you had sold the property for its fair market value. Generally,   this means reducing the fair market value to the property's cost or   other basis. You must do this if: The property (other than qualified appreciated stock) is contributed to certain private nonoperating foundations, You choose the 50% limit instead of the special 30% limit for capital gain property, discussed later, The contributed property is intellectual property (as defined earlier under Patents and Other Intellectual Property ), The contributed property is certain taxidermy property as explained earlier, or The contributed property is tangible personal property (defined earlier) that: Is put to an unrelated use (defined later) by the charity, or Has a claimed value of more than $5,000 and is sold, traded, or otherwise disposed of by the qualified organization during the year   in which you made the contribution, and the qualified organization has   not made the required certification of exempt use (such as on Form   8282, Donee Information Return, Part IV). See also Recapture if no   exempt use , later. See more here.
"The relevant IRS publication is 526, Charitable Contributions. The section titled ""Contributions you cannot deduct"" begins on page 6; item 4 reads: ""The value of your time or services."" I read that to mean that, if the website you built were a product, you could deduct its value. I don't understand the legal distinction between goods and services I originally said that I believe that a website is considered a service. Whether a website is a service or a product appears to be much more controversial that I originally thought. I cannot find a clear answer. I'm told that the IRS has a phone number you can call for rulings on this type of question. I've never had to use it, so I don't know how helpful it is. The best I can come up with is the Instructions for Form 1120s, the table titled ""Principal Business Activity Codes,"" starting on page 39. That table suggests to me that the IRS defines things based on what type of business you are in. Everything I can find in that table that a website could plausibly fall under has the word ""service"" in its name. I don't really feel like that's a definitive answer, though.  Almost as an afterthought, if you were able to deduct the value of the website, you would have to subtract off whatever the value of the advertisement is. You said that it's not much, but there's probably a simple way of estimating that." I don't see a tag for United States, so I'm having to assume this is US taxes.  It doesn't matter what app you use, IRS trades are all calculated the same. First, you have to report each trade on a 8949 and from that the totals go into a schedule D.  Short term trades are stocks that you've kept exactly one year or less, long term trades are for 1 year + 1 day or more.  Trades where you sold a stock for a loss, then bought that stock back again under 30 days don't get to count as a loss.  This only affects realized capital gains and losses, you don't count fees. First, take all of your short term gains then offset them by all of your short term losses.  Do the same for long term gains and losses.  Short and long term gains are taxed at different rates.  You can deduct losses from short term to your long term and vice versa.  Then you can deduct the total losses up to $3000 (household, $1500 married, filing separately) per year on your regular income taxes or other dividend taxes.  If you have over $3000 in losses, then you need to carry that over to subsequent years. Edited per Dave's comments: thanks Dave My understanding is that losses are first deductible against any capital gains you may have, then against your regular income (up to $3,000 per year).  If you still have a loss after that, the loss may be carried over to offset capital gains or income in subsequent years As you suspect, a short term capital loss is deductible against short term capital gains and long term losses are deductible against long term gains.  So taking the loss now MIGHT be beneficial from a tax perspective.  I say MIGHT because there are a couple scenarios in which it either may not matter, or actually be detrimental: If you don't have any short term capital gains this year, but you have long term capital gains, you would have to use the short term loss to offset the long term gain before you could apply it to ordinary income.  So in that situation you lose out on the difference between the long term tax rate (15%) and your ordinary income rate (potentially higher). If you keep the stock, and sell it for a long term loss next year, but you only have short-term capital gains or no capital gains next year, then you may use the long term loss to offset your short-term gains (first) or your ordinary income.   Clear as mud? The whole mess is outlined in IRS Publication 550 Finally, if you still think the stock is good, but just want to take the tax loss, you can sell the stock now (to realize the loss) then re-buy it in 30 days.  This is called Tax Loss Harvesting.  The 30 day delay is an IRS requirement for being allowed to realize the loss. To expand a little on what littleadv said, you can only deduct what something cost you. Even if you had done volunteer work for a charity as a sole prop you could only deduct your actual costs. If you paid an employee to do charity work or to learn something related to the business that would be deductible as a normal business expense.  Some common sense would show that if you could deduct something that didn't cost you anything (your time) you could deduct away all of your income and avoid paying taxes altogether. Back to your more nuanced question could 2 businesses you own bill each other for services? Yes, but you will still have to pay taxes for money earned under each of them. You will also need to be careful that the IRS does not construe the transactions as being done solely to lower your tax bill. You also may want to consider how this interacts with the stepped up basis of estates.  If you never sell the stock and it passes to your heirs with your estate, under current tax law the basis will increase from the purchase price to the market price at the time of transfer.   In a comment, you proposed:   Thinking more deeply though, I am a little skeptical that it's a free lunch: Say I buy stock A (a computer manufacturer) at $100 which I intend to hold long term. It ends up falling to $80 and the robo-advisor sells it for tax loss harvesting, buying stock B (a similar computer manufacturer) as a replacement. So I benefit from realizing those losses. HOWEVER, say both stocks then rise by 50% over 3 years. At this point, selling B gives me more capital gains tax than if I had held A through the losses, since A's rise from 80 back to 100 would have been free for me since I purchased at 100. And then later thought  Although thinking even more (sorry, thinking out loud here), I guess I still come out ahead on taxes since I was able to deduct the $20 loss on A against ordinary income, and while I pay extra capital gains on B, that's a lower tax rate. So the free lunch is $20*[number of shares]*([my tax bracket] - [capital gains rates]) That's true.  And in addition to that, if you never sell B, which continues to rise to $200 (was last at $120 after a 50% increase from $80), the basis steps up to $200 on transfer to your heirs.   Of course, your estate may have to pay a 40% tax on the $200 before transferring the shares to your heirs.  So this isn't exactly a free lunch either.  But you have to pay that 40% tax regardless of the form in which the money is held.  Cash, real estate, stocks, whatever.  Whether you have a large or small capital gain on the stock is irrelevant to the estate tax.   This type of planning may not matter to you personally, but it is another aspect of what wealth management can impact. "Buying a piece of equipment is not a capital loss.  You now have an asset that you can sell for some percentage of the original price. For most assets, that value decreases over time, and you can ""write off"" the depreciation of the value each year.   So you can deduct the depreciation of the asset from your business's income, which would then get passed on to your personal taxes (reducing the profit from your business).  If you don't plan to use the equipment for some time, you might be able to depreciate the equipment based on the amount of usage, but I'd check with a CPA in your area to be sure." "When a question is phrased this way, i.e. ""for tax purposes"" I'm compelled to advise - Don't let the tax tail wag the investing dog.  In theory, one can create a loss, up to the $3K, and take it against ordinary income. When sold, the gains may be long term and be at a lower rate. In reality, if you are out of the stock for the required 30 days, it will shoot up in price. If you double up, as LittleAdv correctly offers, it will drop over the 30 days and negate any benefit. The investing dog's water bowl is half full." An S-corp doesn't pay income tax -- taxation is pass-through.  This being the case, there are no tax deductions it could take for charitable giving.  The solution would be for you to make the contribution out of your own pocket and then personally claim the deduction on your own taxes. Lending is not a charitable contribution. Its an investment. If the loan becomes a bad debt - you'll have to show that it had become a bad debt. For example - bankruptcy declaration. You'll have to show an arm's length transaction, for example - real intention to repay (evidenced by payments of principal and interest made). Otherwise if you have an intention for the loan to never be repaid, it is in fact a gift, which is not only not deductible - its taxable. Bottom line - be careful and talk to a EA/CPA to get a proper advice with regards to a specific transaction. Edit to answer your revised question: you're not going to pay taxes if you're not going to have gains. However, if you lose the principal, in addition to the said above you would incur the loss as a personal bad debt, and not business. This is because it is not investment. The difference is in tax treatment: personal bad debt is a short-term capital loss (limited deduction), business is an ordinary loss. 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. Yes, you will be able to claim it as an expense on your taxes, but not all in the current year. It is split into three categories: Current Expenses - Assets purchased such as inventory would be able to be claimed in the current year.  Assets - Vehicles, Buildings, and equipment can be depreciated over time based on the value you purchased them for and the CCA class. Goodwill - In tax terms this is the value of the business purchase that is not eligible in 1 or 2 and is called Eligible Capital Property. This can be expensed over time.  From info at CRA website: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/lf-vnts/byng/menu-eng.html Here's an excerpt from the Charles Schwab website which I think will help evaluate your position: The simple answer to your question is no, the value of a gift of stock   for gift tax liability is NOT the donor's cost basis, but rather the   fair market value of the stock at the time the gift is given. So let's   say you purchased 100 shares of XYZ stock at $50 a share. Your cost   basis is $5,000. Now the stock is $80 a share and you give it as a   gift. The value of your gift for gift tax purposes is $8,000. In 2015, you can give up to $14,000 to an unlimited number of   individuals each year without paying a gift tax or even reporting the   gifts. If you give over that amount to any individual, however, you   must report the gift on your tax return, but you don't have to pay   taxes until you give away more than the current lifetime limit of   $5,430,000—for the amount above and beyond $14,000 per person per   year. So in the example above, there would be no gift tax liability.   However, if the stock happened to be $150 a share, the value of the   gift would be $15,000. You'd then have to report it and $1,000 would   be applied toward your $5,430,000 lifetime exclusion. You will need to pay a gift tax on the current value of the stock. I'm not familiar with the tax laws in India, but if your brother was in the US, he wouldn't pay taxes on that gift until he sells the stock. The recipient doesn’t have to worry about gift taxes. It's when the   recipient decides to sell the stock that the issue of valuation comes   up—for income taxes. And this is where things can get a bit more   complicated. In general, when valuing a gift of stock for capital gains tax   liability, it's the donor's cost basis and holding period that rules.   As an example, let's say you receive a gift of stock from your   grandfather. He bought it for $10 a share and it's worth $15 a share   on the day you receive it. If you then sell the stock, whether for a   gain or a loss, your cost basis will be the same as your   grandfather’s: $10 per share. Sell it at $25 and you'll pay tax (at   the short- or long-term rate, depending on how long he owned the   stock) on a gain of $15 a share; sell it at $8 and your capital loss   will be $2 a share. Ultimately, with a gift this large that also crosses international borders, you really should hire a professional who is experienced with these types of transactions. Their fees/commission will be completely offset by the savings in risk and paperwork.  http://www.schwab.com/public/schwab/nn/articles/How-Do-You-Value-a-Gift-of-Stock-It-Depends-on-Whether-You-re-the-Giver-or-the-Receiver Generally this is simply a matter of the business paying taxes on the sale (income), balanced by a credit (charitable deduction), which eventually adds up to their not paying taxes on money they collected in order to pass it along to the charity. Note that because the business is taking the deduction on that donation, you can't take a deduction on the charitable portion of your purchase. There are a number of benefits to this type of account.  If one has highly appreciated stock (think Apple), donations of the stock are taken at current value, so for example, I donate $10,000 worth of shares, which cost me $100. In the 28% bracket, and itemizing, I see a $2800 benefit. But, I also avoid a $9900 capital gain and the 15% tax on that, or $1485. In this example, the fund comes into play as it would allow me to break up that $10,000 into smaller donations, and over a number of years.  Next example - In my article some years ago Fun with Schedule A I describe how a strategy of 'bunching' ones itemized deductions every other year can help push people into the ability to itemize where normally they just miss doing so. Using the charitable fund can help people smooth out their contributions to the end charities while actually making the out of pocket withdrawal every other year.  Last - there are many whose income is irregular for whatever reason. This type of account can be useful to help people in this situation make a deposit in high income/high tax rate years, skipping the deposit in low income/low rate years, but still keep up with the annual charity support.  Obviously, one's goal is to help the charities they wish to support, it's silly to donate 'for the deduction.' But, for those who are charitable, these strategies help them divert more money to the charity and less to Uncle Sam.  Sorry, I'm not sure about the math to show that 6.46%. My answer was to share the benefits of using these types of accounts. Depending on the size of the donation, you may be able to reduce taxes further by donating appreciated assets, such as stock or fund shares that have gone up a lot. That lets you dodge the capital gains tax on redeeming the shares, and if you're donating to a tax-exempt organization they don't have to pay that tax either.  And as @JoeTaxpayer has confirmed, you still get to deduct the current value of the donation, not just the basis value of those shares. So if you're donating anyway, this comes close to being Free Money in exchange for some slightly annoying paperwork. (Yet another benefit of long-term investing!) Of course folks in the top brackets sometimes set up their own tax-exempt foundations so they can decouple taking the tax break from deciding what to do with the donation.