Recording the Receipt of a Stock Donation

The end of the year is close and, hopefully, donations are
pouring in. Donating stock instead of
cash to a nonprofit or church may have an additional benefit for the donor.
(Please note, I am not a tax expert and am not giving tax advice. Your donors
should seek the advice of their local CPA to see if this could be a benefit to
them.) IRS regulations allow for stock donated to be deducted by the donor at
the market value instead of the stock price when it was purchased. This means
that if a donor has 100 shares of stock he bought 5 years ago at $10 per share,
and the stock market value is $50 per share when he transfers it to your
organization, he would be able to deduct a charitable contribution of $5000.

In contrast, if he sold the 100 shares of stock, he would
have to pay capital gains tax on the $4000 gain. Assuming a 20% tax rate
($800), he would only have $4200 to donate ($5000 less the $800 taxes). If a
nonprofit is going to encourage their donors to speak to their tax specialist
about this option, there are a couple of things that should be done.

First, the organization needs to have an investment account
that stock may be transferred into. Secondly, the governing body should devise
a policy about what to do with any stock donated. Will it be sold immediately
and the cash invested with other funds, or will the stock be held until the
cash is needed for its stated purpose? Who is responsible for investment
decisions? Finally, procedures must be put in place to assure the donation is
acknowledged on a timely basis and properly in accordance with IRS regulations
on donor acknowledgements. For more
information on donor acknowledgements, check out Church Accounting: The How-To Guide for
Small & Growing Churches.

Now to the nitty-gritty. To record the receipt of stock, you
will want to set up an invoice under the donor’s name for the full market value
of the stock. If the stock was used to pay a pledge that has already been
entered, you can skip this step.

If you are using QuickBooks, go to Receive Payments. Enter the amount as the full market value. If
there were brokerage expenses, we will record those later as the donor records
need to reflect the value before any transaction expenses. You may add a PMT METHOD called Stock. The
value of the stock on the brokerage report may be slightly less than the pledge
due to a change in value from the time the donor authorized it to the time it
was recorded in your account. If so, QuickBooks will ask if you want to leave
as an underpayment or write off the extra amount. If it is a small amount,
choose the write off option. Save this payment, and your donor records will be
up to date.

Next you will need to go to Make Deposits. Change the Deposit
To option to the investment account the stock was transferred into. After
selecting the amount from the Payments screen, you can adjust the deposit for
any transaction fees. Enter the fee amount as a negative number on the next
line. You will also need to assign a general ledger account number to the
adjustment under the FROM ACCOUNT. I usually prefer to use the same donation
account the invoice/pledge was recorded to in order for the net donation to be
correct. Save the deposit.

If your organization sells the stock, make a journal entry
to record the transfer

Dr.                  Cr.

1100-Checking Account                           $4800

6381-Bank Service Charges*                       200

1120-Investment Account                                               $5000

*If the organization does a number of stock sales, set up an
Other Expense account for Investment Transaction Fees.

Now the Statement of Financial Position (Balance Sheet) and
Statement of Activities (Income Statement) reflects the donation properly. In the next blog post, I’ll show how to record
realized and unrealized gains and losses for investment accounts.