Many fundraisers think of cash when it comes to donations, but there's another valuable asset many overlook: gifts of stock.
And no, we’re not talking about livestock!
For savvy donors and nonprofits alike, stock donations present an incredible opportunity for giving that benefits both parties.
In this article, you will learn how stock donations benefit your nonprofit, the types of donors to focus on for this type of gift, and the tax advantages (and considerations) for both your organization and the donor.
Can Nonprofits Own Stock?
Yes, nonprofits can own stock.
In fact, accepting and holding stocks can be a smart financial strategy for many organizations.
Here's the great news: when a registered nonprofit sells donated stock, it doesn’t have to pay capital gains taxes. That means your nonprofit keeps 100% of the sale’s value, allowing every dollar to go toward your mission.
Can Nonprofits Receive Stock Donations?
Yes, your nonprofit can receive stock donations, and it's easier than you might think. Donors can transfer ownership of appreciated stocks or other securities directly to your organization.
This is a win-win: donors avoid paying capital gains taxes, and they also receive a charitable deduction for the full market value of the stock (as long as they’ve held it for over a year).
Once your nonprofit receives the stock, you have two choices: sell it immediately or keep it as an investment. By holding onto the stock, you give it a chance to grow in value, offering a potential boost to your future financial resources. Either way, stock donations provide a powerful way to diversify your funding and maximize the support for your mission.
Identifying the Ideal Donor for Stock Donations
Identifying the right donors is key when it comes to stock donations. Not all donors are the same, and segmenting your donor base is crucial to targeting those most likely to give stocks.
A Gift Range Chart can be a powerful tool in this process. It helps you break down your fundraising goals and align them with different donor levels, making it easier to identify major gift prospects and stock donors.
By understanding where each donor falls within your chart, you can prioritize outreach to those who are capable of making larger, non-cash contributions like stock donations.
Here’s a list of donor profiles you can focus on during your donor prospect research that are great candidates for stock donations:
1. Established Professionals
- Who They Are: These donors are typically in their mid-career or later stages of life and have accumulated significant wealth through investments. They may be business owners, executives, or professionals.
- Why They’re a Fit: They’re financially stable and may be looking for ways to maximize their tax benefits while supporting a cause they care about.
- How to Engage Them: Focus on the tax benefits and the simplicity of stock donations. Offer educational resources or personal consultations to guide them through the process.
2. Seasoned Donors and Board Members
- Who They Are: These are donors who have a long history of giving to your organization. They are already committed to your mission and regularly contribute significant amounts but may not have considered stock donations as an option.
- Why They’re a Fit: Their loyalty and consistent giving suggest they’re looking for ways to deepen their impact. Introducing and educating them about stock donations can allow them to give at a higher level without straining their cash reserves.
- How to Engage Them: Highlight the potential for larger gifts without the need for liquid cash. Present stock donations as a way to increase their giving impact with ease.
3. High-Net-Worth Individuals (HNWIs)
- Who They Are: This group includes individuals who have accumulated substantial wealth, often with a significant portion in investments such as stocks and securities. These high-net-worth individuals can be identified through past giving patterns or wealth screenings.
- Why They’re a Fit: HNWIs are often looking for smart financial strategies, and donating appreciated stock is one of the most tax-efficient ways for them to give. This group may already be aware of stock donations but need a nudge to take action.
- How to Engage Them: Position stock donations as a sophisticated giving strategy that aligns with their financial goals. Offer personalized stewardship and guidance, emphasizing how this giving method can maximize both their charitable impact and tax benefits.
4. End-of-Year Tax Planners
- Who They Are: Donors who are financially comfortable and are focused on maximizing their tax deductions at the end of the year. They often donate large sums during this time of year, but might not be aware that stock donations could be more beneficial.
- Why They’re a Fit: This group is motivated by tax savings, and stock donations can be a great way for them to reduce their taxable income. They may be unaware of the capital gains tax that they could avoid through stock donations.
- How to Engage Them: In your end-of-year fundraising efforts, clearly communicate the tax advantages of stock donations, especially for those looking to reduce their tax burden. Timing is key—make sure they know how quickly and easily they can donate appreciated stock before the year ends.
Benefits of Stock Donations for Donors
1. Tax Benefits
The most significant appeal for donors of stock (in addition to making an impact) is the tax advantage. Donors can bypass capital gains taxes, which can reach up to 20%. Moreover, they get a charitable deduction for the total value of the stock, leading to more significant contributions at no extra cost to the donor.
Note: For maximum tax benefits, securities must be held for over a year before donation. Be sure to consult with your tax advisor to assess the specific implications for both your organization and the donor.
2. Ease of Giving
For those who already own stocks, donating is usually a simple process through their brokerage account, with minimal paperwork involved.
Benefits of Stock Donations for Nonprofits
Stock donations offer some unique advantages for nonprofits that go beyond traditional cash gifts, helping your organization grow and thrive.
Bigger Contributions
Because most donors avoid paying capital gains taxes and can deduct the full value of the stock, they’re often able to give more than they would with cash. That means more funds to support your mission.
Diversified Revenue Streams
Relying solely on cash donations can be limiting. Stock donations open up a new revenue stream and give options, giving your organization more financial stability and flexibility. Plus, funders love to see diversified income sources. In fact, we’ve even seen some grants awarded through stock transfers!
Financial Flexibility
When you receive stock, you have options. You can sell it immediately to access funds or hold onto it if you believe the stock’s value will rise, giving you greater control over your resources.
Is Your Nonprofit Ready for Stock Donations?
Don’t miss out on this incredible opportunity to grow your nonprofit’s impact. Set your organization up for success by establishing a brokerage account, streamlining your processes, and ensuring proper donor acknowledgment.
If your organization has already received significant stock donations or has investments you’re looking to manage more effectively, we’re here to help.
Whether it's optimizing your investment strategy or ensuring your funds are working as hard as they can for your mission, our team is ready to guide you.
Contact us or book a meeting today to learn how we can help you grow and sustain your impact!
Disclaimer:
This blog is for informational purposes only and is not meant as financial, legal, or tax advice. Please seek professional advice from qualified tax, legal, and/or financial professionals before making any financial decisions.
Carnegie Investment Counsel (“Carnegie”) is a registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. For a more detailed discussion about Carnegie’s investment advisory services and fees, please view our Form ADV and Form CRS by visiting: https://adviserinfo.sec.gov/firm/summary/150488.
