Stock Donations: A Tax-Smart Way to Give Back

In this article, we will have a better understanding of the detriment of the FMV of donated stock, Limitations, and challenges with stock donation.

The majority of individuals consider sending a check or giving cash when it comes to charitable contributions. However, stock donations are another tax-advantaged way to contribute that can benefit both you and the charity of your choice.

Stock gifts entail sending publicly traded stocks, bonds, or mutual fund shares to a recognized nonprofit organization. This type of donation has grown in popularity in recent years because of the potential tax benefits and the chance to make a significant influence on philanthropic organizations.

In this article, we will have a better understanding of the detriment of the FMV of donated stock, Limitations, and challenges with stock donation.

Stock donation

The act of donating shares of publicly traded stocks or securities to a charitable organization or nonprofit organization is known as a stock donation. Instead of cash, an individual or organization might make a contribution of stocks, bonds, or mutual fund shares.

According to FreeWill, stock donations have quickly grown in double-digit rates from 2017 to 2020, with organizations focusing on non-cash gifts growing six times faster than those focusing on cash gifts.Non-cash contributions, including stock donations, reached $73.11 billion in the US, representing 14.7% of total giving.

Stock donations saw an 18% increase in 2022 compared to 2021, indicating a consistent upward trend. According to the Council for Advancement and Support of Education (CASE), Stock donations to US colleges and universities reached a record high of $14.9 billion in 2022. According to Nonprofit Source, Global giving reached $501 billion in 2023, with an estimated 40% of donors contributing non-cash gifts (potentially including stocks).Their 2023 survey of CAF America revealed that 27% of donors donated stock in the past year, suggesting continued growth in popularity.

However, in 2022, US charitable donations fell to $499 billion as stocks slumped and inflation surged, indicating a decline in giving due to the stock market’s performance.

Reasons to donate stock

Donating shares can be a beneficial strategy to help charity organizations while also offering financial rewards to the giver. The following are a few justifications for stock donations.

Donating appreciated shares can provide substantial tax advantages. By contributing shares, you can make a more substantial gift to the charity organization of your choice. To make your portfolio simpler you can assist charitable organizations and causes that are important to you by donating shares.

Contributions can be sent to any cause you choose to support, including research, education, efforts to end poverty, environmental protection, and so on.

Stock Donation Advantages and Disadvantages

Stock donation is the act of contributing stocks or other securities to a charitable organization rather than cash. This kind of donation may provide several advantages to both the donor and the nonprofit organization.

Stock Donation Advantages and Disadvantages

Advantages Of stock donation

  • The potential for massive tax savings is one of the key advantages of stock donation.
  • When compared to monetary donations, stock donations can have a stronger influence on charity organizations.
  • A wise way to rebalance an investment portfolio or cut your exposure to a certain stock or industry is to donate appreciated stock.
  • Stock donations can be reasonably simple and uncomplicated to carry out, especially if you have a brokerage account.
  • Many philanthropic organizations recognize and appreciate stock donors.
  • Donations of stock might be a part of a long-term strategy.

Challenges with stock donation

While stock donations can be a beneficial philanthropic instrument, they are not without limitations and obstacles. Here are a few things to bear in mind:

  • Administration Difficulty
  • Market turbulence
  • Limitations on Liquidity
  • Limited Adoption
  • Limitations on Tax Deductions
  • Intricate tax reporting
  • Legal and Regulatory Compliance

Despite these limitations and obstacles, stock gifts can still be a beneficial means to help charitable initiatives. Donors have to consult with their financial and tax professionals to fully understand the ramifications and make educated selections.

How to detriment the FMV of donated stock?

If the contributing stock is traded on the open market, the fair market value of each share or bond is the average of the highest and lowest stated selling prices on the valuation date. The average price of a share, for instance, would be $10 if the highest selling price was $11 and the lowest was $9.

The following discussion covers the many techniques, resources, tools, and the significance of stock donation value.

Determining fair market value of donated stock

When claiming a charity deduction, the fair market value of the given stock must be determined. The following techniques are frequently employed to determine the fair market value of donated stock. If the given stock is publicly traded on a stock exchange, the fair market value is normally determined by aggregating the highest and lowest selling prices on the date of the contribution.

Determining the fair market value of donated stock becomes more difficult if it is not traded openly.

Employee stock option programs must adhere to particular regulations for determining fair market value, thereby consulting a tax professional is advised. There are many tools and resources at your disposal to help you value stock donations. Here are some of the most popular ones:

  • Utilize financial websites to ascertain the fair market value of donated shares.
  • Access past stock prices on websites or market data sources to assess the worth of donated shares.
  • Using systems like Valueline, historical stock prices, and financial factors help determine the worth of donated shares.
  • The IRS publication 561, Determining the Value of Donated Property, provides standards and procedures for stock gift valuation.
  • For specific guidance and a thorough valuation procedure based on unique circumstances, consult a financial advisor.

Importance of accurate valuation for tax purposes

There are various reasons why accurate valuation is essential for tax purposes. The calculation of taxable income is impacted by valuation, which establishes the fair market value of assets and transactions. Accurate valuation enables taxpayers to declare gains, losses, and deductions truthfully, resulting in accurate tax returns and payments.

Tax authorities require a precise appraisal of income and assets to avoid underreporting, overreporting, and potential tax evasion or penalties.

Importance of accurate valuation for tax purposes

Property taxes are largely influenced by valuation, with local governments deciding on the suitable amounts depending on real estate ownership. For estate planning and gifting purposes, precise valuation is essential because it guards against undervaluation and overvaluation and ensures accurate tax assessments.

Donating Appreciated Stock

Giving appreciated stock away can be a tax-effective strategy to help charity organizations while also possibly reaping tax advantages. You may be able to avoid capital gains tax and get a charitable tax credit when you gift appreciated stock.

Advantages of donating appreciated stock

A qualifying charity organization may be allowed to claim a tax deduction for the full fair market value of appreciated stock donations, thus lowering taxable income and total tax obligations. Tax deductions enable a larger donation, maximize the value of the stock, and harmonize philanthropic aspirations with financial planning goals.

Charitable organizations provide simple methods for donating appreciated stock, enabling them to carry out their mission and reach their objectives. When you sell appreciated stock, you are usually subject to capital gains taxes on the rise in value.

However, you can completely avoid paying capital gains taxes if you donate the stock straight to a charity organization. If you have held the stock for a long period and have made significant capital gains, this may be extremely helpful.

Strategies for selecting highly appreciated securities for donation

There are numerous strategies to consider when donating highly prized stocks. Here are some methods to assist you in making wise choices:

  • Recognize the Tax Benefits
  • Investigate and Identify High-Performing Securities
  • Spread Out Your Donations
  • Consult financial professionals
  • Invest with a long-term perspective
  • Analyze the Issuing Entity’s Stability
  • Continue to learn

Qualified Charitable Organizations

Qualified charitable organizations are non profit organizations that qualify for tax exempt status according to the U.S. Treasury and IRS Regulations. These organizations are tax exempt nonprofits that can receive tax – deductible donations and grants to support their charitable work, with specific rules and regulations they must follow.

A nonprofit organization must have 501(c)(3) tax-exempt status and a philanthropic goal, such as eradicating poverty, advancing education, or promoting health. It must follow securities regulations, have a policy on stock donations, and acknowledge donations.

Qualified Charitable Organizations

Tax Reporting and Documentation of Qualified Charitable organizations

There are several significant factors to consider when it comes to tax reporting and documentation for stock contributions. These are the essential steps you need to take. The IRS Form 8283 requires meticulous attention to detail while reporting stock gifts. Here is an outline of how to disclose stock donations in general.

  • Identify whether you need to file Form 8283
  • Obtain the information you need
  • Find the donated stock’s fair market value (FMV)
  • Fill out Section A of Form 8283
  • Finish off Section B of Form 8283

Documentation and record-keeping requirements for stock donations

Mention the name, tax-exempt status, stock description, and contribution date of a charity organization together with any goods or services that were rendered when acknowledging a donation.

Retain the brokerage or investment account statements that show the donation of shares to the charitable organization, together with the name, address, and date of the organization. Keep track of when you bought donated stock so you can figure out how much of it is deductible and whether you owe capital gains tax. Keep copies of all of your completed tax returns, including any schedules or paperwork pertaining to the stock donation, for a minimum of seven years.

Connect Eqvista for Strategic Stock Giving

In conclusion, donating stock to charity can be a fruitful and significant approach to supporting good causes. People can assist the causes they care about while potentially gaining various benefits by contributing stocks.

Donating stock presents a special opportunity to give back while potentially reaping tax benefits and portfolio management tactics. It’s an effective method to bring financial planning and philanthropy together and make a difference in the causes you support for the long term. Use Eqvista to get professional assistance valuing your given stock!

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