Help Your Donors by Encouraging Donations of Stock
Tis the
season for charitable donations and for non-profits to reassess their ability
to accept appropriate contributions. Transferring stock for a charitable
contribution may give the donor a significant tax advantage. With the stock
market at all-time highs, many donors may have stock that has appreciated in
value over the last few years. Donating this stock, in lieu of cash, may allow
the donor to receive the full market value of the stock as a deduction instead
of having to pay the capital gains.
Stock
transferred as a donation to an eligible organization may be deducted by the
donor at the market value as of the date of transfer, IF it has been held for
over one year. If it was purchased less than one year ago, the donation is
limited to the basis (the purchase price) of the stock. In order to understand
how this helps your donors, let's walk through an example.
I purchased
100 share of ABC Corporation five years ago for $15 per share. In 2014, the
value is up to $20 per share. Assume I would like to give my church a $2000
donation. If I sell the stock, I will receive $2000 ($20 x 100 shares), but
will have to pay capital gains tax (15-20%) on the $500 increase in the value
of the stock ($2000-($15 x 100)). So now, instead of having $2000 available to
donate, if I'm in a 20% tax bracket, I only have $1600 available.
If I transfer
the 100 shares directly to the church, I can still take the full $2000
charitable gifts deduction from my taxes, but I don't have to pay any capital
gains tax, nor does the organization. For additional information, go to the
IRS website http://www.irs.gov/publications/p526/ar02.html#en_US_2013_publink1000229755 or talk to a tax specialist.
As a strong
believer in making it easy for your donors to give you money for your mission,
I encourage your organization to set up an investment account. Work with your broker to have a easily accessed set of
instructions on transferring stock to your account. Then let your donors know about the
option. There should be a designated person in the organization who has the
account information and transferring information for the donors to communicate
with. Do not list your account number in an email or on your website. As every
tax situation is unique, your donors will need contact their tax specialist for
specific assistance.
Once you
receive the donation, don't forget to acknowledge the donation. Church
Accounting: The How-To Guide for Small & Growing Churches explains
the various requirements for donations and gives examples for you to use. Your donor will appreciate the increased
ability to maximize their donation to better serve your organization's mission.
