In general business terms, cash is thought of as king.
A strong cash flow usually is a positive sign for the business, providing much-needed flexibility for growth and security in times of financial crisis. The same holds true for individuals and their own finances.
It’s a source that every donor has and one that can be easily transferred from one bank account to another. But for nonprofits and their fundraising goals, cash is only a small part of the equation. A person’s total value in their assets does not lie in only cash. Noncash assets, specifically stocks, hold an immense amount of value that tend to be forgotten about.
Noncash items like food and clothing are donated regularly and require minimal effort on the nonprofit’s part. Noncash securities like stocks, though, are pushed to the side because of the perceived lengthy process that is involved, or the unwillingness to play around in the stock market.
Doing so throws away the attainable value and the added benefits of accepting a stock donation. So why should you start accepting these gifts? Keep reading below for the benefits and steps needed to get started.
The Benefits of Donating and Accepting Stock Donations
Aside from the monetary value that matches what could be earned from a cash gift, the benefits of stock donations include no extra taxes for you and the donor.
Simply put, neither you nor the donor have to pay the capital gains tax on the stock’s appreciated value. The donor takes the tax deduction like normal, and you accept the total fair market value. Even if you decide to hold onto the stock to potentially increase its value on the market, you still don’t have to pay any capital gains tax on the appreciated value when you sell it later on.
Take for example a donor who bought $100 worth of stock in Tesla just a few years ago. Today, that stock is now worth $1,000. Normally, a single-filer would use the tax rate of 15% to pay the $135 tax of their $900 capital gain. Instead of selling the stock, however, they decide to donate the stock to your nonprofit. By doing so, the donor doesn’t have to pay the tax, and neither do you. The only extra step the donor has to do is fill out IRS Form 8283 (if the donation amounts to $500 or more) for noncash donations like stocks.
It truly is a win for everyone. But how do you get started in accepting stock donations and ultimately realize the benefits?
How Can a Nonprofit Start Accepting Stock Donations?
For any nonprofit looking to get set up, all that’s needed is for you to open a brokerage account, and display a form on your site asking for the donor’s contact information. From there, you can then ask the donor for their stock information and when they plan to make the transfer. The donor will need to obtain a transfer form from their own broker, but once they do, then you can exchange the needed information to initiate the transfer.
If done on your own, this process requires time and further detailed instructions for the donor to complete the transfer accurately. To make this process easy, iDonate takes over the paperwork so all you need to do as the nonprofit is wait for the proceeds.
On the backend of your online giving form, be sure to include “Stocks and Mutual Funds” as an accepted asset to be donated. From there, iDonate will send the donor a Letter of Authority. Once completed, theirs’ and iDonate’s brokerage firms will initiate the transfer, and iDonate will ultimately send the proceeds into your account.
The typical paperwork and detail involved can be quite complex. A lot of boxes need to be filled out before any sort of transfer can begin. You as the nonprofit already have enough to worry about.
Remember, there is value to be had in every asset, especially in a stock donation. In 2016, corporate stock donations accounted for over 44% of all noncash donations that individuals reported on their Form 8283 returns, according to the IRS.1 Nonprofits that received these stock donations the same year saw a 66% increase in their contributions compared to five years prior.2
By adding this new source to your fundraising campaigns, you can open up greater doors for the future of your nonprofit.
1 IRS: Individual Noncash Charitable Contributions, Tax Year 2017
2 Cash is Not King in Fundraising: Results from 1 Million Nonprofit Tax Returns