How to Accept Stock Donations as a Nonprofit?

Nonprofit organizations (NPOs) enhance financial health by diversifying revenue sources. Even though getting equities is a common practice, learning how to accept stock donations opens new opportunities for any philanthropic organization. However, mastering the intricacies of the accounting procedures is arduous. When dealing with securities, exhibiting extreme caution is a prerequisite. While such assets are quite substantial and often turn into recurring contributions, it is laborious to record information about them without the assistance of experienced accountants. Read on to discover how to encourage patrons to offer stock gifts to nonprofits and what strategy an NPO must adopt to stay compliant.

Main Reasons to Accept Stock Donations

Funding missions require finding benefactors willing to make a commitment and sponsor the cause. Offering tangible financial incentives allows entities to expedite the fund collection procedure. Entities should learn how to accept stock donations to exploit the full potential of this strategy.

Reputable NPOs receive various contributions. Let’s examine the major upsides to utilizing equities:

• Tax optimization: Benefactors capitalize on gifting securities. It lets them avoid becoming liable for capital gains tax (CGT). Moreover, they can still deduct the full Fair Market Value (FMV). If they bought bonds at a lower price, donating stock to charity allows them to save money and get a higher deduction. Managing such gifts does not require making complex calculations, as an NPO can keep financial statements and reports mistake-free with the assistance of professionals.
• Larger sums: Entities own different appreciated stocks. However, only some enterprises have considered giving them to charities. Most companies do not know about the advantages of allocating stock donations to nonprofits. NPOs can increase cash inflows significantly if they demonstrate the effectiveness of such holdings.
• Streamlined procedures: Until recently, it was challenging to receive and manage equities, but nowadays an NPO can utilize a brokerage account and add a link to a web-based platform. After clicking on it, entities will get redirected to a page where they can finalize a transaction. It expedites the process of generating thank-you letters and conducting operations with shares.

Using reputable services enables NPOs to pay zero fees and access appropriate tools to liquidate holdings and compile accurate reports.

How Can a Nonprofit Accept Stock Donations

NPOs have to gather detailed information about benefactors who may be interested in funding their missions. Pro-grade tools facilitate dealing with equities and simplify the task of liquidating assets when an NPO receives them.

Achieving full visibility and enhancing accountability requires tasking an employee with recording information about gifts. Developing a clear policy outlining the guidelines is also necessary to foster visibility.

NPOs that are curious about how to accept stock donations should use this method:

• Create a brokerage account: Charitable organizations typically pay decreased fees, which enables them to save money. An accountant tasked with documenting gifts should monitor the account daily to ensure supporters receive tax receipts immediately. Patrons may need to order appraisal services before donating assets they own privately.
• Document the transaction: Adding comprehensive information to an official site simplifies receiving shares. Describing tax benefits in detail is instrumental in fueling the interest of potential patrons. It’s advisable to add forms to a website to get data about donors and facilitate recording gifts.
• Communicate with financial advisors: Establishing communication channels facilitates transactions and optimizes the recording procedure. It helps entities avoid obstructions when handling publicly traded equities. When transferring privately owned assets in the last months of a year, a donor should understand that this transaction may not be finalized in time.
• Liquidate assets upon receiving them: This practice enables charities to diminish losses by eliminating the difference between the cost basis of donated stock and the received cash amount. Retaining holdings is not advisable, as it may result in significant discrepancies. Using a Depository Trust Company (DTC), organizations settle trades in securities safely.

An organization that wonders how to accept stock donations should keep its documentation in order and record every step. NPOs collect such data:

• Name, address, and email;
• Type of equities;
• Scheduled date.

Indicating whether shares were held for longer than a year is necessary for taxation purposes. It’s possible to receive a tax deduction for the EMV only if assets were at a donor’s disposal for more than 12 months. Before donating private stock, donors have to contact a reputable financial institution to appraise the shares.

By automating the donation process and making it intuitive, NPOs increase revenue and ensure that transactions will be finalized in time. Using dedicated software enables nonprofits to receive alerts about transactions and record them immediately after they occur.

Tax Considerations for Stock Donations

Patrons benefit from gifting appreciated shares, as it allows them to get a deduction and avoid CGT, which happens when they sell assets. This approach is especially result-yielding when a donor has to pay the net investment income tax or deal with the long-term capital gains (LTCG) rate.

Grant accounting professionals help NPOs grasp the current laws’ intricacies. Cash gifts have more flexible deduction limits than LTCG assets. If an entity owns shares that depreciated in value, selling them, deducting the loss, and then donating cash is a better idea than gifting the assets.

Individuals who donate large sums opt for itemized deductions instead of the standard one. Those who own shares for over a year, get a deduction equal to their FMV after giving stocks to a charity. They do not have to pay CGT on the appreciated value after making a contribution.

Gaining a better understanding of how to accept stock donations is necessary for an NPO to improve its financial standing and establish trusting relationships with people who support its missions.

When recording transactions in a special document, an accountant should put information into specific categories to make it easier to extract it afterward. The file should contain all the data necessary to identify a transfer:

• The date of the operation;
• The number of shares;
• The value on the receipt date and at the time of sale;
• Fees.

Learning the basics of nonprofit accounting for stock donations is obligatory to achieve success. Following GAAP, reputable NPOs record assets immediately and indicate their FMV. As it is impossible to get all the required information from a broker, asking patrons to fill out a special form allows organizations to complete the task.

Experienced accountants know that publicly traded shares are appreciated at the average of the daily highs and lows. Organizations should contact an independent appraiser to learn the FMV of gifts that are over $10,000 to remain IRS-compliant.

After finding out how to accept stock donations, an NPO should understand that holding shares is an unfeasible option. It is not advisable to adopt this approach as an NPO exposes itself to possible risks related to price volatility.

Nonprofits have to record the difference between the amount of cash received after the sale and the FMV as a realized gain or loss. Embracing compliant accounting practices is essential to avoid negative consequences, including hefty penalties and reputation losses.

Compliance and Reporting Requirements

Utilizing the IRS Form 990 is obligatory to report non-cash gifts if an NPO received more than $25,000 worth of grants during a year. Organizations that recognize the significance of remaining compliant sell contributions immediately and record fees as expenses. Many entities want to know: “How to accept stock donations without risks?” The best practices include the following:

• Use special forms to avoid omitting important details;
• Provide a tax receipt without the value and send an acknowledgment letter;
• Utilize advanced software to automate the process.

Adopting a clear nonprofit stock donation policy and developing comprehensible guidelines for the employees simplifies recording the FMV of donated assets. It’s crucial not to put off collecting and documenting all the details, as some information may be forgotten.

Inaccuracies in financial reports result in fines and other avoidable expenses. Using accounting software, charities streamline internal processes and avoid errors. Depending on the type of gift, entities should choose a specific approach to value the shares:

• Publicly traded: When using specialized web-based services, an accountant should enter the name of a company to see information about high and low prices on a specific day. Then, they must record the average value.
• Privately owned shares under $10,000: Donors typically can provide the FMV the details, as they record it. Otherwise, professional accountants should be contacted to decide on the course of action.
• Assets that are not publicly traded and cost more than $10,000: Contacting a third-party appraiser is necessary to meet IRS requirements.
• Bonds: Their value depends on multiple factors, including the date of maturity and interest yield.

After mastering the essentials, a charity will have a clear understanding of how to accept stock donations, but it may still face difficulties managing its financial reports. Entrusting accounting tasks to a reliable service provider allows NPOs to save resources.

Final Words on Streamlining Stock Donation Processes

Optimizing internal procedures, using professional software, and getting assistance from experienced accounting firms facilitate recording contributions without mistakes. Discovering how to accept stock donations is instrumental to boosting revenue and securing stable financing for missions. Making the procedure of contributing shares intuitive, and deploying time-tested practices allows NPOs to adhere to laws. However, keeping track of regulation changes is daunting without experienced professionals’ assistance. BooksTime has a team of experts who have deep knowledge of stock fundraising practices and are ready to help their clients. Contact our specialists today and adopt the most efficient practices to deal with charity contributions.