What You Can Do | SHARE RETURN DONATION

Asking people to donate is an easy ask, but it can be difficult for you to do. We think you’ll like this idea.

As the stock market reaches new highs, the needs of charities and nonprofits are greater than ever. Making donations of stock instead of cash provides critical financial support to them and a potentially bigger tax deduction for you.

In fact, donating stock instead of cash can be a smart tax-planning move for many types of investors. This is true whether you have greatly appreciated shares acquired long ago in one of the most valuable stocks of 2020 (e.g. Amazon, Apple, Etsy, FedEx); stock from being an early-stage investor in an upcoming hot IPO company (Airbnb, DoorDash); or company shares acquired from the exercise of stock options, the vesting of restricted stock/RSUs, or an employee stock purchase plan.

1. 1. Core Tax Rules For Stock Donations
   After you have held the stock for more than one year and its price has risen, at the time of the donation, you get a tax deduction equal to the fair market value of the stock (i.e. not your lower purchase price, technically known as the cost basis). For stock not held for one year, the deduction is the cost basis or the current fair market value, whichever is lower.

If the sale of the appreciated shares would have triggered long-term capital gains, your deduction is up to 30% of your adjusted gross income (20% for family foundations), and you can carry forward higher amounts for five years. When the sale of the shares would have produced ordinary income or short-term capital gain, the deduction is limited to 50% of your adjusted gross income (30% for family foundations) with five-year carry-forwards. Shares gifted to donor-advised funds receive the same tax treatment.

2. 2. How Stock Donations Are Valued For Tax Deductions
   For public companies with an active market in their stock, the fair market value for the donation is the average between the high and the low stock selling prices on the delivery date. For the stock of pre-IPO companies, you need a valuation by appraisal or some other reasonable valuation method. With your tax and financial advisors, you want to review various sources, including IRS Revenue Ruling 59-60. It lists valuation factors and explains that no general formula fits all private-company situations.
3. 3. Donation With Stock Can Be Bigger Than With Cash
4. With a charitable gift of appreciated securities held long-term, the donation you make and the deduction you get are greater than they would be if you were to sell the shares and donate the cash proceeds instead. That is because when you donate shares, you avoid paying the capital gains tax.
5. 4. Company Stock Can Help Bunch Donations
6. The advice from many experts is to bunch donations so that your itemized deductions go beyond the Tax Cuts & Jobs Act standard deduction amounts in 2020 of $12,400 for individuals and $24,800 for joint filers (adjusted annually for inflation). If you do not routinely exceed the standard deduction, you can get over it by bunching in given year donations of stock to charities or a donor-advised fund.

5. 5. Extra Time May Be Needed To Process Stock Donations
   To obtain a deduction for the current tax year, the stock transfer must be completed by December 31. The donation is recorded for electronic transfers from your brokerage account on the day it is received (not when you approve the transfer). Plan your year-end stock gifts as early as possible, know the process the charity or nonprofit requires, and have ongoing communications with your broker to ensure that the transfer takes place.

If you have valuable stock in a pre-IPO company, you will want to start the process especially early. Donations and transfers of stock in a private company can take longer than those for stock in public companies and raise valuation issues.

6. 6. Must File Special IRS Form
   You need to report the stock donation on IRS Form 8283, used for your noncash charitable contribution with your tax return.
7. 7. Special Issues With Stock Compensation
8. For a charitable donation of company stock acquired from equity compensation, the tax treatment and rules are the same as for donations of any stock to a qualified charity or donor-advised fund. If the donated shares were acquired from incentive stock options (ISOs) or an employee stock purchase plan (ESPP), be sure you donate the shares after you have met the related special holding periods for ISO and ESPP stock (more than two years from grant and one year from exercise/purchase). Executives and directors will also review Section 16 and Rule 144 requirements before gifting or donating company stock.