When you think of philanthropic giving, the phrase “appreciated stock” may not be the first that comes to mind. It is an often overlooked and underutilized source of charitable giving that can provide significant tax benefits to donors. With trillions of dollars in value created in the stock market since 2009, there is massive potential for nonprofits to tap into the approximately $100 billion represented by appreciated stock.
Some questions donors can consider regarding gifts of stock:
- Have my stocks appreciated greatly since I purchased them?
- Has a surge in the value of one of my holdings thrown my portfolio off balance?
- Do I want to refocus on other investment categories?
According to a Fidelity Charitable study, 80 percent of donors own appreciated assets, such as stocks, mutual funds or bonds. However, only 21 percent of those donors have benefited by contributing these types of assets to charity.
How can you harness the advantages of stock gifting to diversify and strengthen fundraising efforts for sustainable disaster philanthropy?
Stock gifts offer several advantages over cash gifts, making them an attractive option for both donors and nonprofits.
Donors can give more, with tax benefits: Donors can avoid capital gains tax and deduct the full value of their stock gift. This means if you donate stock that has appreciated for more than a year, you are giving at least 20 percent more than if you sold the stock and then made the cash donation. This can also result in substantial tax savings, as illustrated by this example:
Assume a donor owns $10,000 worth of Apple (AAPL) stock with a cost basis of $2,000 (the original price the asset was acquired for, for tax purposes). If they sell the stock and donate the proceeds, they would pay 20% in capital gains tax, leaving the nonprofit with only $8,000. However, if they donate the stock directly to the nonprofit, the nonprofit receives the entire $10,000, and the donor would be able to deduct the full gift amount, saving an additional $3,000 in taxes.
Long-term assets: Stock represents discretionary assets donors have invested in for long-term gains, whereas cash is more liquid and needed immediately. This is why stock giving often provides a giving vehicle for donors where otherwise they might not have been able to give. Due to the long-term nature of this investment, some donors like to give a portion of their appreciated shares to their nonprofit of choice and then buy new shares to reset the cost basis at the current, higher price. This reduces future capital gains tax exposure if the stock continues to grow in value.
Pre-tax giving: Stock gifts made before taxes allow nonprofits to keep the full value of the donation, which would otherwise go to the IRS.
Donor satisfaction: Donating appreciated stock allows donors to share their financial success with a cause they care about, creating a sense of fulfillment and sometimes the ability to make a larger gift than they would have if they were giving cash.
Diversification of funding sources is crucial in disaster philanthropy.
Many of us in philanthropy know that relying on a single source of fundraising, such as grant funding alone, can be risky. Appreciated stock presents an opportunity to diversify your fundraising efforts while receiving larger gifts that benefit both donors and nonprofits.
Development professionals in disaster philanthropy can safeguard their organization’s fundraising for the future by proactively educating donors about the benefits of donating stock gifts. Don’t miss out on the potential of stock gifting to drive your nonprofit’s mission forward and leverage philanthropy to mobilize equitable disaster recovery globally. If you haven’t already, it’s time to make stock gifting a central part of your fundraising strategy.
To be eligible for a charitable deduction, gifts of stock need to be received by the end of the desired tax year. Because different assets take different amounts of time to be transferred, you should initiate your transactions as early as possible.