Gifts of stock. There are very few gift vehicles that provide more benefit to the donor. It’s one of my “Big Four” ways of giving donors often forget about. We’ll talk about the other three in another post soon.
Gifting stock to a charity allows the donor to claim the full present market value of the stock and not owe a penny of capital gains tax on the appreciation of the stock. Where the 3.8% Net Investment Income Tax applies, a gift of stock escapes this tax, as well.
To start: the stock must be owned by the donor for more than one year and, as noted above, must have appreciated in value.
Here comes the part that many organizations fail to understand:
Nonprofit organizations are not in the business of providing a valuation of the gift to the donor for their tax purposes. That is a big no-no, and yet I see it happen all the time. Some donors don’t understand the rules. Others do, but ask us to value the gift anyway.
Don’t fall into that trap. It can get you in trouble.
What to provide the donor when you receive a gift of stock?
Besides an earnest thank-you in the acknowledgment letter (always a letter, never a receipt), we affirm to the donor the name of the stock donated, the number of shares given, and the date when the stock was received in our brokerage account. More about that in a minute.
It can also be a convenience to the donor if we state the high and low value of the stock on the date it is received by us, but many savvy shops don’t do so. Here’s why.
When we post the value of the gift for our own purposes, we take the average of the high and low value of the stock, times the number of shares given, on the date it lands in our account.
However, and this is really important, the donor will value the gift based on the average of the high and low value of the stock, times the number of shares given, on the date it LEAVES the donor’s account.
Let’s say the donor instructs their broker to make the gift on a Friday afternoon. The stock leaves their account on that day, but may not arrive in the organization’s account until Monday morning. Often, there can be a difference in the price of the stock during that time, and the donor should value the gift for their tax purposes based on when it leaves their ownership, not when we receive it.
This is a really important point that a lot of organizations, and donors, don’t know.
Of course, as with any gift over $250, our acknowledgment letter must address the value of any tangible goods or services received by the donor in conjunction with the gift.
I like to add the following: “We will value this gift at $___. However, we are not able by law to provide a value of the gift to you for your tax purposes.”
The donor will use IRS form 8283 to claim a deduction for a charitable contribution of property.
This is a good place to add that a gift of stock is just one example of a gift-in-kind, and most gifts of capital assets are treated in the same way.
A doctor once gifted three examining tables to a clinic affiliated with the hospital where I worked, and called me for a “tax letter.” I sent it along and the doctor called back to ask, “Could you please send me another letter with the dollar value of my gift?” I imagined that my predecessor may have obliged him, but I decided following the law was the preferable option.
He was pleasantly insistent, so I finally had to say, “Doctor, the IRS won’t allow it. I could go to jail.” “O, Mr. Cummings, I will visit you in jail.”
And he was only half-kidding.
A few last tidbits. When a donor wants to claim a tax deduction for a gift of stock, he or she must itemize deductions on their tax return.
It is absolute best practice to advise your broker, who will receive the gift, to sell the stock immediately. If you cannot have a standing “sell” order, be sure your brother knows to call you as soon as the stock is received. This practice allows you to be consistent with the donor’s intent to gift you an amount he or she knows is approximate with the value of the stock as they know it.
Make sure, in the “Gifts of Stock” instructions you post on your website and otherwise provide to donors that you urge donors to let you know of their intention to make a gift of stock. You tell your broker to be aware of this pending transaction. Otherwise, the stock is received but neither your broker, nor you, may be able to determine the identity of the donor!
Far too many nonprofit organizations deduct the broker’s fee to sell the stock from the value you use to post the gift. This is wrong. The cost to sell the securities should be separately recognized by the Finance Office as investment fees expense.
And finally, all of the above does NOT apply to gifts of mutual fund shares! That’s a separate process. We’ll explain that one soon, as well.
This all may sound complicated, but it’s really not complicated at all. Just follow these rules and after two or three stock gifts, you’ll be an old pro.