You should ask for stock donations because when a donor makes a stock donation there are tremendous tax benefits, which your donors will appreciate and as a result will enable them to make a bigger donations.
The process of donating stocks can be incredibly nuanced and there are numerous reasons why a processer like Stock Donator can help you navigate the process. In order to help your donors, it is important you are aware of the benefits to a donor of donating stock to charity. These benefits depend on the nature of the stocks and how long they have been held.
When donating stock to charity is a good idea.
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).
Donating stocks can be an appealing way for donors to reduce concentrated stock positions or rebalance their portfolio of stocks without incurring a major tax liability. Donors must consider important rules prior to making the donation of stock:
Rule #1: Be aware of the AGI deduction limits based on the type of asset you’re donating. 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.)
Rule #2: Maintain receipts! The charity should provide you with written confirmation of your contribution. For tax reasons, the receipts must include relevant information that the IRS requires on each stock donation receipt. Fortunately, Stock Donator provides these receipts on behalf of the organizations straight to your donors – one less thing for you to worry about!
Best types of stocks to donate
Tip #1: Make sure the shares are in the long term capital gains territory. What this means is that you should make sure the donor’s donates only shares that have been held for at least a year and one day – that way it is not considered a short term capital gain.
Tip #2: Donate the shares with the largest unrealized capital gains – That way you will get the most bang for your buck. Even if the donor believes that this stock will go to the moon, they can repurchase the same shares in the market and increase their cost basis. Instead of donating cash, the donor will get the double benefit of donation stock and will not have to forego the position in that stock. Just make sure that you watch for the wash-rule.
Tip #3: Pick Highly liquid stocks– For the sake of the charity or nonprofit accepting the stock donation, it is best to choose an asset that is highly liquid, and trades on a public exchange so it can be easily converted to cash without losing value. Organizations that don’t use Stock Donator will run into problems setting up a brokerage account and conducting a complex securities sale. Plus, when they try to sell and convert to cash, the sale might result in less value if the shares are not able to be sold easily in a market order transaction.
For more tips, check out the 7 things every donor should know about making stock donations online.
Types of stocks you should not donate
Like there are winners, there are also losers – stocks you don’t want to donate. If a donor has any of these problems, you should notify them that they might not get the benefits they imagined if they donate stocks in these categories.
Category 1 – Stocks owned for less than a year– Securities that have been held for less than one year would be subject to short-term tax treatment, meaning they’d only be able to deduct their cost basis for the donation and the donor’s tax benefit is greatly reduced. In this case they are better off donating cash. Remember the rule – wait a year and one day before donating.
Category 2 – Stocks that are losses on the books – Don’t donate stocks that have incurred losses. These losses offer their own tax benefits in the form of an offset to other capital gains. So its better to sell and donate the proceeds from the sale than donate these stocks.
Category 3 – Privately held stocks– Privately held stocks or restricted shares of public stocks are not the most charity-friendly contributions. While there’s no rule saying these can’t be donated to charity they can be difficult to process – unless the charity uses Stock Donator.
Which charities can accept stock donations?
There’s likely a wide variety of organizations competing for your stock donations. You can click on https://stockdonator.com/donate-stock-online-now/ and choose from one of 1800+ organizations that accept stock donations. If you don’t fin an organization there that floats your boat, you should reach out to the organization that you want to donate stocks to and ask them to open an account with Stock Donator. It takes 3 minutes to open a free account and there is no cost to open or maintain an account. Stock Donator takes care of all the backend operations for the stock donation process and receipt handling so that the organization can focus on what it does best.
When’s the best time to donate stocks?
Most donors tend to make charitable donations such as stock donations near the end of the year. However, with stock donations, the best time to make a donation is when the market is up. When you have the most unrealized capital gains, that is the best time. Most charities are doubtlessly happy to accept contributions at any time of the year. Donors should always keep a close eye on the fluctuations of the market, opting to make their most substantial donations while the market is stable or experiencing an upswing. If you want to make the donation online, Stock Donator can help process stock donations online from all the major brokerage firms.
How do you avoid difficulties with accepting stock donations?
While directly donating a portion of your stock portfolio can provide numerous opportunities to minimize your tax burden and boost your charitable giving, in practice, there are times where there are difficulties. For example, some smaller charities (i.e. churches, foster homes, local food pantries) may not have brokerage accounts set up to receive stocks and won’t know how to do it. This setup process can present a number of obstacles— trading costs, regulatory hurdles, and a variety of other administrative hassles— all just so the charity can liquidate the stock and cover their day-to-day operations. For these organizations, its a good idea to suggest opening an account with Stock Donator so that they can forego these hurdles and you can get your benefits.
Helping Donors optimize charitable giving will get you bigger donations
Charitable giving can be one of the most fulfilling parts of having wealth. but its important to have a strategy, personalized to your own financial needs and objectives. Stock Donation is just one way of optimizing charitable giving by allowing organizations and charities to accept stock donations online. By understanding the tax implications of stock donations and providing a clearer understanding of why it’s worthwhile to make a stock donation to your donors, you can help them realize more gains and avoid taxes and hopefully get yourself a bigger donation in return. See the 7 ways stock donations can help your nonprofit.