stock-donations

Your Comprehensive Guide to Nonprofit Accounting For Stock Donations

Nina

Did you know that your organization can diversify its revenue by accepting stock donations? Even though they are far less common than cash offers, similar to nonprofit startup grants, they can open up your organization to a whole new world of additional funding opportunities.  

While stocks are an excellent asset, we are going to break down some special considerations that must be taken seriously. There are numerous details involved in accounting for donations to nonprofit organizations

We give you all the information you need in this article, from stock valuations to tax receipts, so that you can ensure that your organization is ready to diversify when the opportunity presents itself. 

Here’s what we will go over:

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What You Need To Know About Stock Donations

Are you ready to get started? Consider this section your go-to guide about stock donations. We will break down what they are, why people give them, why you might want to consider taking them and how you should go about accepting them. 

What Are Stock Donations?

Stocks are investments in companies that represent ownership shares. Stocks have value based on how many people are interested in purchasing them, the company’s fundamentals and profit margin, their public actions, and environmental factors. All of these factors can cause the value of these stocks to rise (appreciate) and fall (depreciate). 

People who invest in the stock market have the option to donate their appreciated stocks to charities. These stock options can also include assets, mutual funds, and bonds. 

As they have value and can also be sold to convert that value into tangible funds, they are a valid and useful contribution. If given the opportunity to accept them, you should seriously consider it as this is a great way for nonprofits to diversify their revenue stream. 

Why Do People Give Stock Donations?

There are specific reasons why someone might consider a stock instead of a cash gift. It’s a savvy and tax-smart way to donate because doing this has benefits such as avoiding the federal capital gains tax. When people sell a stock at a price higher than what they paid, they are subject to capital gains taxes on the sale. However, if that person donates the stock to a charity, they avoid paying the tax on the proceeds.

nonprofit-accounting-for-stock-donations-Emily-whyEmily is pondering the reasons people choose to give stock donations.

Since this tax can take up to 20% of assets held longer than a year, circumventing this by donating can save them substantial money on taxes. People in their golden years may realize that they have more money saved than they will ever need. They may consider cashing in on a stock holding that they know they will never use to further a cause near to their heart. Although they could sell the stock and then donate the proceeds, their chosen cause would receive more money if they donated the stock directly because the donor would avoid the tax.  

Why Should You Consider Taking Stock Donations?

A Texas Tech University study found that fundraising growth trends were up to 55% higher for nonprofits that allowed non-cash donations such as stock as viable donation options along with more traditional cash donations. 

This example shows that offering versatility within your organization via accepting stock donations can really broaden your fundraising horizons and give you the potential for increased funds

As the donor receives the added tax breaks, it’s a win/win, and if that donation is going to a charity that they love, like yours! 

How To Go About Accepting Stock Donations

Now that you know what stock donations are, it’s time to dig into how exactly to accept them and ensure proper in-kind donation accounting

First, you have to put some infrastructure in place before you can be eligible. Here are the steps for enabling stock donations:

1) Set up a brokerage account

You will need to have one of these accounts because brokerage firms are responsible for stock transactions and stocks are typically stored in a brokerage account. You will be unable to take ownership of a stock if you do not have the proper medium to receive it. 

2) Provide information for potential donors 

In the form of an email, letter, website page, and/or social media post, you will need to prove the following content to potential stock donors: 

  • Your organization’s name

  • The name of your stockbroker

  • The account number for your stock account

  • The transfer number

  • Your phone number

3) Set out your stock donation guidelines in a formal investment policy 

First, you want to make sure that all instructions are outlined in a way that will avoid confusion and make it easy for your donor to understand. Offer open communication so that any questions can be easily resolved to facilitate an encouraging, welcoming process. 

nonprofit-accounting-for-stock-donations-investment-policyEllie is drafting a formal investment policy for her organization.

Among your guidelines, you will need to include any specifics as to the types of stocks you will or will not accept as donations and provide specifics as to how long your organization will hold on to the stock before selling it for funds. 

4) Set a clear method of accounting to keep accurate records of stock transactions

To ensure your accounting is in accordance with regulatory requirements, ensure your method is organized and easy to follow. You can utilize an excel document or another method as long you can easily categorize the following information to prepare nonprofit accounting for stock donations:

  • The date on which you received the donation

  • The symbol for the donated stock (also called the "ticker")

  • The stock’s value on your receipt date

  • The number of shares for that stock that you received

  • The date on which you sold the stock (when you do)

  • The stock value at the time of sale

  • A record of any administration fees that were involved in the process

Now that you have established ground rules and defined the proper procedure and guidelines for your acceptance of stock as a donation, you are ready to promote your new donation option. 

Remember that Google Ad Grants offers up to $10,000 dollars per month of free promotional services for eligible nonprofit organizations, which can really get the word out. 

Encourage community volunteers to help you spread the word via organization newsletters and other marketing vehicles as well, and make sure to share the information through blog posts, social media, and your website. 

Make it easy for prospective stock donors by keeping the process simple and easy to understand so that the transaction is smooth and painless. This should, of course, be reflected in your informational letter, as well. 

It is helpful to provide a listing of trustworthy brokers they can use if they do not already have one, but are interested in the possibility of offering donations with this method. 

Pro Tip: When you find an interested party, rather than just sending your instructions, go above and beyond and offer to correspond by phone. This will give you the opportunity to learn the details of why they chose your organization, build a rapport, and potentially encourage future donations. In addition, it gives you a chance to guide them smoothly through the process and handle any questions they may have. It’s customer service 101! 

Alright, time to get down to the nitty-gritty. Now that you have all of the information you need to ensure full transparency, stay compliant, and keep your books up to date, we can talk about your accounting obligations. 

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How To Record Stock Donations

Using the process detailed in the How To Go About Accepting Stock Donations section, record the relevant information in an organized fashion within whichever data entry program you prefer. It’s important to do this immediately so that there is no opportunity for information to be lost or forgotten. 

Now, transfer the information from your ledger to your accounting program (e.g., Quickbooks) and follow your typical donation recording process. 

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How to Value a Stock Donation

In order to properly record the value of the donation you first need to assign one to the stock. Here’s some information that will make it easier to understand stock valuation.

nonprofit-accuonting-for-stock-donations-Matthew-valueMatthew is excited about learning how to value a stock donation!

Publicly Traded Stock

To value this stock, take an average of the high and low selling prices on the date of the donation receipt. A great place to find the open, high, low, and close values is at Yahoo Finance

Type the name of the company in the search bar and click enter. Not only will you see the information for the current day, but you can also click the "Historical Data" link to see all the relevant details for the previous several months.

Stocks That Are Not Publicly Traded and Under 10K

Determining a fair value of securities that are not publicly traded can be a tricky issue. Your primary source of information should be the donor. They likely need the fair market value of the stock for their tax purposes and can provide the relevant information to you. 

Pro Tip: Valuation is a very complex issue; if the donor cannot provide you the information you need you should reach out to your broker or accountant to discuss your options. 

  • Bonds - value is dependent on the level of security, interest yield, date of maturity, and other similar factors.

  • Stock Shares - value is dependent on the net worth of the company, prospective earning power, the company’s ability to pay stock dividends, and similar factors.

Stocks That Are Not Publicly Traded and Are Over 10K

Fair Market Value - The IRS requires you to have the stock evaluated by an independent appraiser to determine fair market value, which takes company fundamentals and aspects into account to determine what price the stock would be worth if it were on the open market. 

What If The Stock’s Value Changes?

If you set a hold period for the stock during your infrastructure planning, there is a very good chance that the stock’s value will be different now from when the stock was received. 

Upon the stock’s sale, record the difference between the initial price and the market value received as either a realized gain or loss in your books. 

Record any brokerage fees incurred as an investment fee expense.

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Be Immaculate With the Details

Just like with nonprofit grant accounting, the details matter most. To ensure that you receive all relevant details with nothing left out, have your donor complete a stock donation form to prevent any omission of information. 

A simple online "fill-in-the-blanks" stock donation form is best for retrieving this information as it is easy on the donor. You want to avoid making the transfer a hassle so that you can encourage similar future donations.

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Providing Receipts

The IRS guidelines for stock donations mandate that any donation with a value greater than $250 dollars warrants a receipt. As soon as the donation is in your brokerage account, send your donor a nonprofit stock acknowledgment letter that includes a tax receipt for it. 

nonprofit-accounting-for-stock-donations-Sam-receiptsSam is sending a receipt to his organization's latest donor right now!

This receipt should include the donation value, number of stock shares, and the symbol that represents that stock, also called the "ticker name".

Pro Tip: As sending out a receipt for every donation is a bit tedious, you can streamline the process with automation software such as Springly which uses a specially designed tax receipts feature to make the process much less time consuming. Why not use the extra time saved to follow your automated receipt with a thank-you call to express your appreciation to your donor. These are the little things that form the building blocks for long-enduring relationships! 

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Springly is trusted by over 15,000 nonprofits to help them run their organizations on a daily basis. Try it, test it, love it with a 14-day free trial!

Finance
Nina
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