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.