Stock Donations May Help Mitigate the Effect of Changes in Tax Law on Your Non-Profit

Non-Profits across the country could lose up to $100 billion in 2018 due to increases in the standard deduction that is part of the Tax Cuts and Jobs Act signed into law in December of 2017.

A representative from the Arizona Communities Foundation, speaking at the Nonprofits Connections meetings this past Friday in Sedona, shared three strategies to help your non-profit mitigate the consequences of the new tax law.

The first – encourage your donors to donate stock instead of cash. Nothing changed in the basic capital gains tax structure as part of the Tax Cuts and Jobs Act, so donations of stocks that have appreciated retain their appeal from a tax perspective. If a donor donates stock directly to a charity’s brokerage account, not only do they get a charitable deduction for the stock’s fair market value on the day it is transferred to the charity, they also avoid capital-gains taxes on the increase in value over time, which they would have had to pay if they sold the stock then gave the charity the cash proceeds

Before encouraging your donors to donate stock:
1. Consult with an expert (I am neither a lawyer or CPA),
2. Open a brokerage account, and
3. Create a standing order to sell any donated stock immediately upon transfer to you. That way you avoid the possibility you’ll lose some of the value of the donation due to negative market fluctuations, and avoid disappointing the donor if their gift is not as much as they had hoped.

Obviously, you’ll want to be sure you are thanking all your donors, but for those who donate stock, you may want to consider including in thank you letter the high and low price of the stock on the day it is donated. The deduction they receive for their gift is the average of the high and low price of the stock on the day the transfer happens, so this additional information could be very helpful, and appreciated.

Tip: Encourage a known donor to make the first such stock donation and then use their story to encourage other donors to do the same.

Stay tuned for more strategies to mitigate the effect of tax law changes on your non-profit. Just click the FOLLOW button on the right to be notified by email when a new article is posted.

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