What are the IRS Stock Donation Rules?
IRS STOCK DONATION RULES FOR DONATING TO NONPROFITS
Donating stock to charities will do wonders for a donor provided that they follow the IRS rules regarding donating stocks. In order to help donors we have summarized the rules for donors who wish to learn more about donating stock. Please note, this article is not intended to give tax advise. Everyone’s situation is different and you must contact your own tax professional to make sure that your circumstances are right for taking full advantage of the rules regarding stock donations.
Follow these IRS Rules for Donating Stock:
Select a qualified recipient
If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Also, you cannot deduct contributions made to specific individuals, political organizations or candidates. See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization.
Itemize deduction and fill out IRS form 8283
To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. If your total deduction for all non-cash contributions for the year is more than $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.
Stock Donation Process Timing for Deductions
Its important to note that stock donations transfers do not happen immediately, so it is hard to time the market exactly and make a transfer at the top of the market like you would for a sale. But, the good thing about stock donations is that you take the average value of the stock on the date of the transfer. So when the market is having an up day, that is a good time to make the transfer. Here are some other considerations regarding the IRS rules regarding stock donations:
DEDUCT ANY BENEFITS
If you receive a benefit because of your contribution such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair market value of the benefit received.
COMPUTE THE AVERAGE MARKET VALUE OF THE STOCKS DONATED
Donations of stock or other non-cash property are usually valued at the fair market value of the property. There are special rules for determining fair market value of stocks (see IRS rule 561). Stock Donator computes this value for you. See here for more information on how to compute the average value of the stocks.
Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization and the date and amount of the contribution.
For text message donations, a telephone bill meets the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution and the amount given. Stock Donator maintains these records for you if you maintain a stock donator account.
To claim a deduction for contributions of cash or property equaling $250 or more, you must have:
- A bank record
- Payroll deduction records
- A written acknowledgment from the qualified organization showing the amount of the cash
- A description of any property contributed
- Whether the organization provided any goods or services in exchange for the gift.
- One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more.
Stock Donator maintains these records for you if you maintain a stock donator account.
QUALIFIED APPRAISER NOT NEEDED FOR STOCK DONATIONS
Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser. This rule does not apply to Stock Donations.
Tax Benefits of Donating Stocks to a Non-Profit
Stock Donations Made To A Non Profit Organization (501(C)3) Can Significantly Reduce The Amount Of Tax You Pay.
DONATING STOCKS OR OTHER NON-CASH GIFTS ALLOWS YOU TO LEGALLY EVADE PAYING INCOME TAX ON THE AMOUNT DONATED AND CAPITAL GAINS TAX ON ANY APPRECIATED VALUE OF THE SHARES DONATED RESULTING IN SIGNIFICANT TAX SAVINGS TO YOU. CLICK HERE TO COMPARE TAX SAVINGS OF DONATING STOCK WITH CASH DONATIONS.
What is the difference between a Charitable Organization and 501c3 status?
Not all charitable organizations are 501c3s. A 501c3 does not have to pay taxes on certain kinds of income, it may not be granted a charitable status that enables its donors to write off taxes. The tax-exempt status of a 501 (c) (3) organization is granted by the IRS. A charitable organization may be tax exempt, but it is not always tax exempt.
Are my stock donations valued differently for tax deductions?
No. Stock donations are valued at the average value on the date of receipt. The average value is determined by taking the market high and market low, adding them together and dividing by two. The average value can only be determined after markets close.
How big of a donation can I make with stock?
For cash donations, donors may deduct up to 60% of their adjusted gross income (AGI). With stock donations, however, you are limited to 30% of AGI, meaning you may need to carry deductions into future tax years if your contribution exceeds this threshold.(Remember: this carryforward is only good for five years.)
When I donate stock shares, do I avoid paying capital gains taxes?
Yes. Donating appreciated shares of stock provides value, particularly with respect to capital gains taxes. If you donate a security with an unrealized capital gain, you won’t have to pay that capital gains tax after the sale. Nor will the charity if it sells the shares immediately. As an added bonus, the donation is fully tax-deductible as cash would be for those who itemize, allowing individuals to claim a tax deduction based on the fair market value (FMV) of the stock at the time of transfer (assuming they’ve owned the stock for more than 1 year).