The CFO'S Perspective

Accounting and Reporting for Stock Gift Donations to Nonprofits


Last week I shared an overview about recording non-cash gifts and the opportunity for a nonprofit organization to accurately present the types and value of contributions it receives to support its mission. 

Today we review a related topic: Stock gift donations.

The easiest type of donations for nonprofits to accept are unrestricted cash donations. While everyone loves cash, what if you could supercharge your organization’s growth by accepting other types of non-cash gifts—like stocks?

According to a recent study by Dr. Russell James at Texas Tech University, non-cash donations were responsible for more robust growth in nonprofits. Specifically, James studied the data of 1 million nonprofit tax returns from 2010-2015. Over a five-year period, the total growth in fundraising contributions was 11% for organizations that only received cash gifts compared to 66% growth for those that received non-cash securities gifts.

The difference revealed in that study is staggering, but maybe not surprising considering the benefits that donors derive from handing over some of their stock to a nonprofit. By contributing stock to your organization (as long as it was held for more than one year), donors can avoid capital gains taxes, take a charitable tax contribution (if they itemize), and give more than they otherwise thought possible. 

But, setting up this program for your nonprofit, as well as figuring out how to track, record, and acknowledge donations, can be a challenge. Here’s what you need to know to get started.

How Will Your Nonprofit Accept Stock Gift Donations?

Accepting donations of stock is simpler than it seems. First, it’s a good idea to encourage the practice by letting the public know that you are willing (and happy) to accept securities as non-cash donations. Some of the major nonprofits that are doing this well include:

  • American Red Cross- Gives step-by-step instructions for transferring stock and mutual funds.
  • Save the Children- Provides a chart outlining the benefits of gifting stock and gives transfer instructions. 
  • Amnesty International- Lists the broker details for a stock transfer and the information required in a separate email or phone call. 

Before you put one of those pages on your nonprofit’s website, you’ll want to take a few steps first:

  1. Set up a brokerage account

Set up a brokerage account with a low-fee provider such as Schwab or TD Ameritrade. Some brokers will give special deals, meaning low fees, to nonprofit organizations. 

  1. Create a letter of instruction

Create a standard instruction letter for stock donations that you can email, fax, and post on your website. It will include your business name, broker name, account number, transfer number, fax, and phone number. 

  1. Establish a formal Investment Policy

You’ll also want to establish a formal investment policy, since you may not want to accept all types of stock donations. First, decide whether or not you will immediately sell the stock or hold onto it (more on that in a moment), and how you will communicate your policy so that there are no surprises with the donor. 

Will there be some types of investments that you won’t accept as donations? For example, stock in a non-publicly traded company is less liquid and might come with restrictions and additional costs to sell. 

Finally, decide how you'll fund your brokerage account with respect to any fees and who will be in charge of maintaining the relationship with the broker. 

The Formal Process for Tracking Stock Gift Donations

When your nonprofit decides that it’s going to accept stock donations, it should give some serious thought to who will be in charge of this program. Specifically, who will track, record, and acknowledge stock gifts? It might be your accounting/finance team or someone on your development team. There’s no right or wrong answer, as long as it makes operational sense. 

Set up a system for tracking these gifts. In most cases, this will take the form of a separate spreadsheet or another database program that includes fields for:

  • Date of receipt
  • Value of stock on that date
  • Stock ticker
  • Number of shares
  • Date of sale
  • Value of stock at sale
  • Any administrative fees

The best and most commonly used practice is to sell all stock immediately upon receipt.

Nonprofits generally want to avoid the appearance of speculating on the stock market. This approach helps the organization avoid risk, and it converts the securities to cash to maintain operational cash flow. 

How Should You Record Stock Gift Donations for Accounting Purposes?

As soon as a stock donation is received, it becomes one of your nonprofit's assets. You should record this in your records immediately, or at a minimum once per month. In that same spreadsheet you established earlier, the value of the stock on the date of receipt becomes the donation amount. 

Record the Donation

Since you own the securities on the date of receipt, Generally Accepted Accounting Principles (GAAP) require that you record the asset in your books at the fair market value on that date. It can be difficult to obtain all of the information you need for your records from a stock transfer notice in your broker account, which is why it’s helpful to ask donors to fill out a Stock Donation Form or give you a call with some additional information. 

For accounting purposes, publicly traded stock should be counted at the average of the high and low selling prices on the gift date (the date you receive it). If you decide to accept closely held stock (not publicly traded) and receive a gift over $10,000, the IRS requires that you get fair market value from a qualified independent appraiser. 

Sell the Stock or Hold It?

If your organization’s policy is to immediately sell the stock, any difference between the amount you receive in the sale and the fair market value on the date of receipt will be recorded as a realized gain or loss on your books. If you incur any brokerage fees connected to the sale, this amount is recorded as an investment fees expense. 

Some tax-exempt entities choose to hold onto donated stock, however this exposes the organization to market risk.

Properly Acknowledging Your In-Kind Stock Gift

Once you receive a donation of stock, a thank you and acknowledgment letter should be sent to the donor. Not only is this the right thing to do, but it’s also required by the IRS for any gift over $250. The best practice is to do this upon receipt of the gift, but it’s acceptable to do so within 30 days based on volume. 

Your letter should acknowledge the gift of stock, including the ticker, the number of shares, and the date of the donation. It should not, however, list the value of the stock since your organization is not in the business of assigning value to securities or gifts in-kind. 

In addition to the particulars of the donation, your organization will want to make a statement to the effect that “no goods or services were provided by your organization in exchange for the donation,” or if they were, the value of anything exchanged. You should also be tracking your stock donor acknowledgment letters in your donor database, spreadsheet, or CRM. 

Why Accurate Reporting & Accounting of Stock Gifts is Essential

One of the things that nonprofits falling under the rules of 501(c)(3) organizations learn quickly is that they have to handle reporting and money wisely. Nonprofits have to make ends meet just like any other organization but failing to follow certain rules could have significant consequences. 

Stock donations are outright gifts, so must be reported as soon as the assets are transferred to your organization. Whether intentional or not, failure to follow the rules could result in financial penalties as well as a loss of reputation and trust in the community. 

Accepting donations of securities is an excellent way to boost the growth of your nonprofit and provide a ready source of cash flow for operations. 

CFO Selections has created strong connections with nonprofit organizations throughout the regions we serve, in Oregon through our partnership with the Nonprofit Association of Oregon (NAO). 

Contact us for additional information about our work in this area.  

About the Author

Todd-KimballTodd Kimball is a Partner with CFO Selections and leads the non-profit practice in Oregon and SW Washington.  He is also the Accounting Solutions Partners practice leader in Oregon and SW Washington.

Todd is a senior accounting professional with over 15 years of expertise in the non-profit and government sectors. He has a proven track record at tackling the most challenging not-for-profit accounting issues and finding solutions that work and move organizations forward.  He excels at creating process efficiencies, motivating and utilizing staff to their full potential, implementing internal controls and providing sound technical expertise.  Learn more about Todd here

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Topics: Accounting, Non Profit Organizations, Philanthropy, Portland

Topics: Accounting Non Profit Organizations Philanthropy Portland