A stock donation receipt is the written record that a charitable organization provides to a donor of stock shares. It always includes the number of shares donated and the corporation’s name to which the shares belong. The receipt should never assign a monetary value to the shares.
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Tax Deductions for Stock Donations
Donating stocks provides two valuable tax incentives. First, donors can claim deductions on their donated stocks’ total fair market value (FMV). The FMV of a stock is the amount it would have sold for on its donation date.
It’s important to note that if a donor’s total annual deductions are lower than that year’s standard deduction, stock donations won’t benefit their tax return. On the flip side, the maximum tax deduction for stock donations is 30% of the donor’s adjusted gross income.
Capital Gains Tax
The second tax incentive provided by stock donations is its effect on capital gains taxes. A capital gain is the profit earned when an individual sells or exchanges an asset, including stock, for a higher price than they purchased it. Once the individual does sell the stock, they are required to claim it on their income tax return for that filing year.
Long-term capital gains come from assets held by the owner for more than one year. Depending on the owner’s income, the IRS taxes these gains at either 0%, 15%, or 20%.
Short-term capital gains come from assets held by the owner for less than one year. The IRS taxes these gains as ordinary income based on the owner’s tax bracket.
When a stock is donated to an eligible charity organization, it automatically receives a 0% capital gains tax rate for the filing year it was donated.
How to Donate Stocks (4 Steps)
Step 1: Find an Eligible Charity
A charity needs a brokerage account to accept stock donations. Donors can check charity websites for this information or request it directly from a charity’s treasurer.
Fill out and sign any required donation paperwork to submit to the charitable organization and the donor’s brokerage firm. The brokerage firm will process the transaction.
Follow-up with the charity and the brokerage firm to confirm the donation executed on both ends. Request a stock donation receipt from the charity at this time.
Step 4: Obtain Receipt by December 31st
The donor must receive a donation receipt by December 31st for the contribution to be eligible for a deduction. If the donor hasn’t received a donation receipt towards the end of the year, it’s wise to follow up with the charitable organization to get a copy.