Transform Charitable Giving by Accepting Donated Stock
The new year is here and as charities strategize on fundraising goals, stock gifting should be a top priority. The pandemic has forced nonprofits to seek new sources of funding as cash gifts are down in many sectors, and fundraisers may not return to prior levels. Nonprofits must diversify and grow funding strategies to compete. Appreciated stock represents $100 billion in untapped funding, and new ways of stock gifting have enabled 60 million American investors to donate stock in minutes.
In 2018, less than a percent of investors claimed deductions for charitable stock gifts. With so much potential revenue, here are four reasons why donating stock has been largely ignored in the past
- Very few nonprofits are proactive in educating donors on the benefits of donating stock. Did you know that nonprofits can avoid capital gains tax while also deducting the donation’s fair market value? In principle, stock represents a discretionary source of giving. By making a pre-tax stock gift instead, charities get to keep what would have otherwise been paid to the IRS. As they represent discretionary assets, stock gifts are generally much larger than cash gifts.
- Nonprofits had to have a brokerage account to receive stock. Brokerage accounts are difficult for nonprofits to establish. Generally speaking, only the top 1% of nonprofits have budgets to open and maintain them. This is no longer a problem now that stock gifts can be converted to cash on behalf of the nonprofit, with the proceeds going to the receiving organization.
- Stock gifting had been a painstakingly manual process for the donor and the nonprofit. Nonprofits had to educate the donor, provide the donor with the information needed to execute, wait for the donor and their broker to initiate the transfer, sell the stocks, reconcile and account for donations, send receipts to donors, etc. The process frustrated both parties, making it difficult for nonprofits to advocate and scale.
- The lack of data accompanying a stock transfer made it difficult to reconcile stock gifts. Stock shows up in the nonprofit’s brokerage account without any information about the donor. This makes it challenging to identify who donated it, how to account for it, where to send receipts, etc.
Charitable giving is revolutionizing, and nonprofits should take advantage of how the process of donating stock to charity has become fast and easy. Modern donation platforms can eliminate the administrative burden and create a more seamless and transparent process by allowing donors to simply register, select a nonprofit organization and specify the stock and number of shares they would like to donate. This new approach allows nonprofits and donors that are passionate about impacting communities to make the most out of charitable giving.
Steve Latham is the founder and chairman of DonateStock. Steve has an MBA from Harvard University. He is a serial entrepreneur with three decades of experience in starting and growing innovative technology companies in finance, marketing and data analytics.