How do you donate stock to charity?
To donate stock to charity, a donor needs to
follow a few simple steps:
1. First, they need to contact the charity organization’s giving team to find out their stock donation process, and to receive their account information and brokerage number.
2. Next, they’ll need to contact their broker for their stock donation process forms. The forms and documentation required can vary, so it’s important to get the specifics from their financial advisor or brokerage firm.
3. Usually, the instructions the charity gives will be enough for a brokerage company to get its side of the process done. A donor will also likely have to complete some paperwork in order to authorize the stock donation and finalize the transfer of the shares.
If you have high net-worth donors who most likely have appreciated assets, then it will be much better for your organization to get them to give gifts of stock rather than cash. Your donors can make a bigger impact by saving on capital gains and income taxes.
In order to understand stock donations more broadly, though, you should know about different types of stock and what they can mean for nonprofit fundraising. In general, a stock is a type of investment that represents an ownership share in a company. However, these can be grouped together (as in a mutual fund), publicly traded, or privately held. Investors or individuals buy stocks that they think will go up in value, or appreciate, over time.
For example, anyone can buy stock or shares of Apple. When they do, they own a small percentage of the company, hope their shares appreciate in value, and ultimately try to sell them for a profit. We’ll revisit this example as we move through the stock donation process.
3 common types of stock
Here are the three different types of stock that can be donated to your organization:
Publicly-traded stocks are the non-cash assets most frequently donated to charities, because they’re widely owned and easily transferred. These are stocks that are sold on stock exchanges. People can purchase shares of stock in a company (i.e. shares of Apple), and there is a clear, publicly known price at any moment in time.
Mutual funds, also known as exchange traded funds, are an investment in a group of stocks (or other investments). These are popular with the everyday stock trader, since they’re less risky than owning one particular stock or share in one company. Mutual funds track the average of a group of stocks in a specific “index”, like the S&P 500 or the Dow Jones Industrial Average. To put it simply, when you hear things like “the Dow is up,” this means that the average value of all the stocks on the DJIA (about 30 in total) is up.
Privately held stocks are shares held in a company that is not yet publicly traded (like LLCs, S Corp, or C Corp). These are typically startups or smaller companies that split shares amongst their employees. Because these stocks are only held by a few individuals, the total dollar amount of a share tends to be significantly higher than shares of a publicly-traded company. In terms of the donation process, it is similar to that of donating publicly-traded stocks, with the exception of needing an appraisal to determine the fair market value of the stock. So, although these are the least common types of stock, they can often be the largest stock gifts your organization can receive.
3 benefits of stock donations for nonprofits
Gifts of stock can secure your organization’s future by bringing in larger, recurring gifts.
Here are three key benefits that your nonprofit can receive from accepting stock donations:
1. Nonprofits accepting stock donations grow 6x faster than those accepting only cash.
Stock giving is crucial to fundraising success or failure for your organization. Though that may sound like an overstatement, a study done by fundraising expert Dr. Russell James shows that nonprofits accepting non-cash assets saw 66% revenue growth over a five-year period compared to those accepting only cash. And this applied to organizations of all sizes. James’ research proves that regardless of your organization’s fundraising levels, consistently raising gifts of non-cash assets — and particularly gifts of stock — makes you significantly more successful.
2. Donations of stock are much larger than cash gifts.
If you only ask for cash gifts, your organization will miss out on a large pool of untapped fundraising dollars. According to the U.S. Census, a whopping 97-99% of wealth is held in non-cash assets. Right now, the economy is coming off an 11-year bull market, meaning that many long term assets have grown despite the stock market falling in early 2020.
In 2018, the average stock donation was $5,230 — a much larger amount than the average cash donation. At FreeWill, the average stock donation on our Stock Gifts tool in 2020 was even higher at $31,000. Additionally, donors who leave gifts of stock tend to do so every year for the added tax benefit. By simply offering stock donations as an option, you can increase the size of your gifts significantly, and turn more supporters into major, recurring donors.
3. People who feel wealthy give more.
According to the same Russell James study mentioned above, people who think about giving out of their wealth instead of their disposable income donate more. Donors are more likely to give irregular, unearned gains (i.e., their investments) than regular, earned work income.
For example, when a donor considers a $1,000 gift against the amount they have in their checking account today, it may seem too large a percentage of their spending money. When they consider this same $1,000 gift as a percentage of their total wealth (all cash savings and non-cash assets, shares, personal property, real estate, etc.), the gift feels like a relatively small percentage of their net worth.
Also, once a donor makes their first gift from non-cash assets, they now consider these assets as a source for potential future contributions. If you can effectively maintain relationships with stock donors, you’ll continue to receive more generous, recurring gifts.
How does stock giving benefit donors?
Giving stock is the most tax-savvy way for donors to maximize their philanthropic impact.
1 . Donors can save up to 70% or more on taxes.
When donating stock, your supporter will avoid paying two types of taxes: capital gains and state income taxes. Additionally, they can claim a charitable deduction for the fair market value, or current price of the stock, at time of donation.
A capital gain is the current value of a stock minus the amount it was purchased for. The federal capital gains tax rate is currently set at 20%. At the state level, capital gains are taxed as normal income. This means that, depending on where the donor lives, they could be paying up to 33% more if they were to sell the stock instead of donating it.
Let’s take a look at an example of how this might play out for a wealthy donor in California:
Donate $10,000 worth of Apple shares to charity
Federal capital gains tax savings
(assuming 20% tax rate on $5,000 gain)
|State income tax savings on capital gain (assuming a 13.3% rate in California)
|Income tax savings when claiming donation as a charitable deduction (assumes 37% rate of $10K)
|Net tax savings
- A donor in California wants to donate $10,000 worth of Apple shares to charity. When they bought the shares, they were worth $5,000, meaning they currently incur a capital gain of $5,000.
- If they donate the stock, they avoid paying a 20% federal capital gains tax. This means that they will save 20% of $5,000 (their capital gain), or $1,000.
- On top of that, they also save on capital gains taxes at the state level. Most states tax capital gains as ordinary income, which comes out to 13.3% in California. This would mean that our donor would save $665 in state income taxes on their capital gain.
- Many states will also allow donors to deduct a charitable donation from their state income taxes, but for simplicity, we’ve left that portion out here. You can view your state’s filing rules on irs.gov.
- Finally, the donor can deduct the full $10,000 (or the current value of the stock) as a charitable deduction. The tax rate can be as high as 37%, depending on their income.
- Assuming our donor is in the 37% bracket, they would save $3,700 on their income taxes.
When we add this up, it results in significant tax savings of almost 70%. If the donor had sold the stock and donated the cash from the sale, they’d only be able to give $8,335 after taxes. Plus, they’d only receive a charitable deduction on the amount they gave after capital gains taxes were taken into account. By donating stock, they can give a gift worth $10,000 at no added cost to them.
2. Donating stock doesn’t have to change a donor’s portfolio.
Unlike selling stock on the market, donating stock makes it exempt from the wash-sale rule. Normally, this rule prevents people from selling stock at a loss and immediately repurchasing it at a higher fair market value. However, when a donor gifts a stock to a nonprofit, they are allowed to repurchase the same stock that day for its fair market value. This can help them reset their shares at a higher cost-basis, and ensures that their investment portfolio remains the same.
Your organization and your donors will get the most benefit from giving appreciated stock that they’ve owned for more than a year. This way, they can deduct the current price of the stock (called the “fair market value”) instead of the price they paid for it. Due to current tax laws, if a stock is donated before its been held for a year, it’s considered a short-term asset. When donating short-term assets, the gift is limited to what was paid for the stock, also known as its “cost basis,” and not its current value.
3. Stock donors can join a higher level giving society.
Because stock donations are such a tax-savvy way to give, donors can make larger gifts, and move into major gift territory. Most nonprofits classify major gifts as any donation of more than $5,000. As mentioned earlier, the average stock donation ($5,230) easily exceeds or meets the major gift threshold.
By becoming major donors, your supporters can receive the benefits of being a part of a higher level giving society at a nonprofit. And average per-donor contribution levels are 49.6% higher in organizations with a dedicated donor club.
Two tips on asking for stock donations
When talking to donors about stock gifts, you need to emphasize why it’s beneficial, how it isn’t any more difficult than other types of giving, and the clear next steps they’ll need to actually do it.
Here are two ways to have a successful conversation with a prospective donor:
1. Use social proof to incentivize donors to give in new ways.
Social proof is the concept that people want to behave in ways that are similar to their peers. When having a conversation with a potential stock donor, note that other donors like them have decided to leave gifts of stock. Framing it in this way can lower the pressure of the ask.
Using the Apple stock example above, you might say: “I thought about you because another longtime donor, also from California, recently donated Apple shares and saved a lot of money on her taxes. Would you be interested in learning more about that?”
By making donors curious about what other tax-savvy givers are doing, you can educate them about stock gifts without pressuring them to make an immediate decision.
2. Acknowledge surprise.
When asking donors to think differently about charitable donations, it’s important to recognize that new ways of giving might be surprising to them. Acknowledging this can lower any defensiveness they may feel towards more complicated forms of giving, and open their mind to new possibilities.
For example, starting a conversation with “donating your Apple shares is much better for you and for us” can make a donor feel like they’ve done something wrong by not considering this option before.
Instead, change the framing to: “That other donor was also surprised by how beneficial that gift of stock was for them and the impact they wanted to have.” This acknowledges that stock giving might be new to them, and also makes it clear that you want their donation to benefit their wallet as well as your organization.
Stewarding stock donors is key to fundraising growth
Donor stewardship, the relationship-building process that occurs after a donor makes a gift, is the key to keeping your stock donors around. The main purpose of stewarding your donors is to inspire them to give again. Recurring donors give an average of 42% more than one-time donors.
Because stock donations can help your supporters save on their taxes annually, you should maintain good relationships with them to turn them into annual, major givers.
Here are three tips for successful stock donor stewardship:
1. Say thank you.
Since stock gifts are typically larger than other donations, you need to acknowledge them within 48 hours. Immediately give these donors a call or send them an email to thank them for their gift. You could also mail a handwritten card or letter within the week to show your donor that you appreciate their generosity. If they consent, give them public recognition as well, such as featuring them on your website, or in a newsletter.
2. Host events for your major donors that center around pure gratitude.
To build genuine relationships with your major donors, hosting one to two stewardship events a year where the sole purpose is gratitude, can make donors feel acknowledged and help them build community with other supporters. This is especially important in the midst of the COVID-19 pandemic, as stay-at-home orders and guidelines remain in effect. Shifting to virtual events will allow your organization to continue stewarding your biggest supporters. Online events also result in lower overhead costs, and create new opportunities to engage planned and major giving donors across the U.S. who wouldn't have been able to attend or meet each other otherwise.
Additionally, since face-to-face meetings are not always possible right now, calling stock donors can be a great way to thank them and make one-on-one connections until it’s safer to meet in person.
3. Send updates on their specific impact.
If a stock gift donor supported a specific project, give them regular updates on the status of that project. If they gave to the annual fund, give them specific examples of what their money is going toward. The goal here is to show your donor how their gift is making an impact, so that they will be inspired and encouraged to give again.
7 steps to begin accepting stock donations
Here is how you can begin accepting stock donations, while making it easy for donors to give:
1. Choose a person or team in your organization to track, record, and acknowledge stock gifts. Most organizations designate someone on their accounting or finance team to receive the gift, which is then reported out to someone in development for stewardship and recording purposes. As nonprofits vary in size, this will come down to what makes the most sense for your organization.
2. Open a brokerage account. Research which brokerage firm is convenient and has the least fees — the most common are Schwab and Fidelity Charitable.
3. Create a stock giving landing page on your website. Include information about stock giving and its benefits. Don’t put your account or DTC number directly on your website, as this can lead to fraud. Instead, include a form to make a stock donation, where you can collect your donor’s information and follow up with them personally. As many brokerages won’t alert you to in-process gifts, or collect vital donor information, this will also ensure that you know who your donors are and can steward them effectively.
4. Monitor the brokerage account daily so you can immediately value the shares for your donor tax-receipt.
5. Sell the stock and transfer the cash from your brokerage account to your nonprofit. It’s best to sell the shares the same day you receive them, so you don't have an accounting difference between the donated value and the actual cash proceeds.
6. Send out a receipt and thank the donor. Receipts are required by the IRS for any donation of more than $250. Your thank-you letter should acknowledge the gift, including the stock’s ticker, the number of shares, and the date of the donation. Additionally, thank your donor for the impact their gift will have on your organization.
7. Track your stock donors in your donor database, spreadsheet, or CRM, so that you can continue to steward them and cultivate new stock gifts.
At FreeWill, our Stock Gifts Tool tracks and records donor and gift information for you, making it easier to steward stock donors, and stay on top of your stock donation records. This engagement process should continue until they are ready to give again or make another kind of gift.
Ready to begin accepting donations of stock at your organization? FreeWill can help.