The Nonprofit’s Guide to Stock Donations
As a nonprofit, you’re constantly looking for ways to expand your gift options to engage more donors and raise more for your mission. As newer, more modern donation payment methods continue to emerge, it can be difficult to distinguish which ones are right for your nonprofit. One gift option you might not want to overlook is stock donations.
Whether you’re seeing stock donations make its way into mainstream media or perhaps your organization has even gotten requests from supporters about it — you’re now wondering if stocks are a viable option for your organization.
In this guide, we’ll cover everything you need to know about stock donations:
- What to know about the stock market and its investors
- Why nonprofits should consider adding stock donations as a gift option
- What to include in your gift acceptance policy regarding stocks
- How to accept stock donations
The stock market & its investors
By definition, stocks are an investment that represent ownership shares of the issuing company. Because stocks increase in value over time, they are considered appreciated non-cash assets — like real estate, mutual funds, or bonds — making stocks a more valuable investment than cash. In fact, according to a study by Dr. Russell James JD, PhD, CFP, cash makes up less than 10% of the collective assets and wealth owned by Americans.
There are approximately 145 million Americans who own stock, with the average family holding about $40,000 worth of stocks. While stocks are owned by families of all income levels, the number of stocks owned is more prevalent in wealthier families. Of the Americans who own stock, the majority make more than $100,000 a year.
Why donate stock instead of cash
Although people donate their stock options to nonprofits because they want to support a noble cause, the larger reason is that gifting stock comes with tax benefits for the donor. Because stocks are considered property, when an investor’s stock increases in value, so do the taxes they owe on it.
If the donor has had the investment for under a year, they may be subject to short-term tax treatment, which means they can only deduct the original value of their stock asset. However, if the donor’s stock investment has been appreciating for more than a year, they avoid paying capital gains taxes. This greatly benefits the nonprofit because without having capital gains taxes taken out of the donation, the nonprofit receives the entire intended donation. Plus, the donor is eligible for a tax deduction based on the fair market value at the time of the donation, offering more of an incentive for donating stock.
Why nonprofits should accept stock donations
Many nonprofits consider adding stock as a donation option to diversify their payment portfolio. Giving donors the option to choose how they can donate to your organization increases the chance of conversion because you’re meeting more donors’ giving preferences. For example, if your nonprofit only offered credit cards as a payment option, odds are you’re losing out on potential donations. Research shows that 42% of US consumers abandon a purchase if their favorite payment method isn’t available, which could be compared to donation abandonment as well.
Plus, your organization can significantly boost fundraising revenue by just adding an option to donate stock. In the same study conducted by Dr. Russell James JD, PhD, CFP, it was found that nonprofits promoting and receiving are seeing a 55% growth in donations compared to nonprofits only accepting cash donations.
Connect with more major donors
Nonprofits that offer stock donations are better positioning themselves to connect with wealthier individuals who have a higher capacity to give. In fact, these major donors are contributing more than $21 billion in stock every year to their favorite charities.
While stock donors want to give back to their communities, they also want to make financially smart decisions. Donating stock checks both of those boxes for them. So, if you're not making it easy for these major donors to donate stock using your nonprofit's website, you're missing out on valuable donors and leaving revenue on the table.
Adding stock to your gift acceptance policy
Before you start accepting stock donations, it’s important to take the necessary steps to protect your organization from any potential risks and liabilities. That’s where your nonprofit’s gift acceptance policy comes into play.
We highly recommend including the following information in your updated gift acceptance policy, which explains:
- The types of stock you can accept: Explain what types of stocks you will be accepting (e.g., publicly traded stocks, mutual funds, or privately held stocks) and which brokerages you’re working with.
- How you will be processing stocks: Your donors will want to know whether you will liquidate stock donations immediately or retain them to appreciate over time.
- Who is eligible to give a stock donation: While anyone who owns stock is eligible to donate, it might be a good idea to outline that a donor avoids paying capital gains taxes if the asset they are intending to donate has been appreciating for at least a year.
- Stock donations are non-refundable: Make it clear in your gift acceptance policy that stock donations are non-refundable. While most donors won’t change their mind, this gives your organization an extra layer of protection from any donor who decides to take back their stock donation after making the gift.
Ways to accept stock donations
Traditionally, people who wanted to donate stock to their favorite nonprofit had to go through a manual process that takes a lot of time and effort. That process could look something like this:
- The donor contacts their nonprofit of choice and finds out if they accept stock donations. If the answer is yes, then the nonprofit provides the donor its account and brokerage information.
- The donor then has to contact the brokerage to obtain the necessary donation forms. The brokerage might even ask for additional information from the nonprofit, like a medallion stamp guarantee.
- The donor then fills out the forms and starts the transfer to the nonprofit's account. Once completed, the brokerage will provide the donor with a reference number.
- The donor contacts the nonprofit to let it know that the stock donation has been initiated.
- To ensure the nonprofit received the donation, the donor has to check in daily until they receive confirmation from the nonprofit.
The good news is that nonprofits no longer have to go through such a tedious and time-consuming effort just to get a single stock donation. Now, there are new technology solutions entering the fold, like Fundraise Up, that are helping to facilitate and streamline the stock donation process.
While other stock donation platforms can take up to an entire week to approve a transaction, Fundraise Up is able to confirm stocks are available prior to the donor giving a stock donation.
Integrating stock as a donation payment option
With Fundraise Up, your nonprofit can accept stock just like any other type of donation — like credit cards, bank transfers, digital wallets, and crypto — and your donor’s experience remains as personalized and seamless as ever before.
The process is simple: your nonprofit accepts the stock donation from the donor, Fundraise Up processes the paperwork and works with their preferred brokerage, and then we store the transaction.
If your donor has a specific brokerage they like to use, we can work with their preferred brokerage to process their stock donation. Fundraise Up can accept stock donations from any brokerage: Fidelity Charitable, Charles Schwab, E*Trade, TD Ameritrade, and more than 1,000 other institutions.
And now, you can remove uncertainty from the stock donation equation knowing that Fundraise Up provides secure and compliant stock donation processing. Not only is Fundraise Up SOC II compliance, which adheres to stringent security practices to provide protection for your nonprofit's data, we also are the only platform that ensures a Medallion Signature Guarantee. This allows Fundraise Up to process stock donations up to $1 million for our nonprofits that choose to accept stock.
A Medallion Signature Guarantee, a difficult and costly certification to obtain, certifies that a signature that authorizes the transfer of securities is authentic. This is typically a required step in the stock donation process done by the nonprofit. However, nonprofits can rest easy and trust that Fundraise Up will do the hard work to ensure that every stock donation is valid and authentic.
Interested in learning more about Fundraise Up and how you can start accepting stock donations? Schedule a call with one of our team members.