Survey after survey shows that donors rarely cite tax advantages as their most important reason for giving. That is good. It means your donors give because they care about your mission.
It is still in the best interests of your donor to maximize the tax benefit of their gifts whenever possible. Likewise, it is in the best interests of the nonprofit and donors for staff to help donors develop strategies to do so.
Have you ever had that moment in fundraising when the light bulb goes on for a donor? You go from being a representative asking for help to a partner working together side-by-side with the donor. That moment is when they “get it” and understand that the organization is actually there to serve them.
One way to create such a moment is to explain the power of a non-cash gift.
Many donors are surprised when they learn that they might be able to avoid paying capital gains taxes and provide additional support to their nonprofit of choice at the same time.
When talking with donors, you might be surprised to find that they have been liquidating assets just to have cash on hand to make their gifts and pledge payments. In addition to paying transaction fees they are also likely paying capital gains taxes, so the gift you receive has already been reduced to pay tax liabilities.
Non-cash gifts, also called “asset-based giving” simply means making a gift with something of value which the Internal Revenue Service (IRS) does not consider cash. Securities-based gifts, such as stocks and mutual funds, fit into the non-cash category, as do cars, boats, antiques, jewelry, real estate, even stock in a privately-held company. It’s anything of value that could be converted to cash.
Now is the time to capitalize on strong stock market conditions and discuss the idea of donating securities with your higher net-worth donors, especially if some of their positions are in stocks they think might have peaked.
This is important for many reasons, one of which is donations as a multiplier. Explain to donors that your organization can quickly liquidate stocks for immediate cash. Do not forget to mention the multiplier effect. For appreciated assets, the donor’s initial cash investment was well below the security’s current value.
By transferring ownership directly to your nonprofit instead of selling it outright, there is more cash for the organization with less cash flowing out of a donor’s pockets. Wealthy donors understand how to ride economic trends and will appreciate your insights about leveraging their generosity to create greater impact.
According to fundraising coach Marc Pitman, “There’s something very incredibly empowering about going to a meeting with an expert and being armed with strategic questions, even when the expert already has your best interests at heart.”
In addition to the multiplier, individuals with strong assets might also be thinking about estate planning and wealth succession. They have often already set aside non-cash gifts for your organization in their will, but would happily let you have those now if you can demonstrate the impact of accelerating the transfer of their nonessential assets.
There are several significant tax benefits to your donors:
• They might be able to receive full fair market value for their tax receipts. That’s right — full fair market value. This is a big deal because regardless of how much they paid for the stock, the tax receipt is based on the worth of the stock as of the transaction date. This is especially important during bull markets like today.
• One of the hardest things to manage is the tax on the sale of securities. Capital gains tax liability usually occurs when the asset is sold, so avoiding the actual sale has great benefits. By gifting the securities, the sale never happens under the donor’s taxpayer ID, usually resulting in zero tax liability for the transaction. What would have been a tax hit might now have become a tax break.
• In general, the IRS sets limits on how much donors can give. For general cash contributions, the limitation is 50 percent of a person’s adjusted gross income. However, for contributions of capital gain property, the limit is 30 percent.
The 30 percent rule also applies to contributions to most private foundations. The limitation rules are complex and donors in this situation are advised to consult with a tax advisor for details. The majority of your donors will never hit these limits, but high net-worth individuals often exceed them.
A single article is insufficient to cover all the reasons for and methods of soliciting stocks and mutual funds from donors, but it is plenty to help you get started on a strategic plan to increase funding from your investment-savvy donors.
Just be sure to include these essential elements:
• Get your tax/legal counsel to weigh in on developing the campaign.
• There are many reputable organizations with experts in helping start these types of programs. If you don’t have the resources internally, bring in a partner organization to help.
• Determine what types of gifts will be converted and what types your organizations might decide to hold and use or hold and sell later. Make sure this is fully disclosed to your donors. Remember that honoring donor intent is a fundraising fundamental.
• Make sure the campaign planning is included in your acceptable gifts policy documentation and training.
• Teach your teams how to identify economic indicators that might suggest good timing for specific asks. For example, when stock markets are high, it is very likely your wealthy donors have appreciated stock to give.
The same is true for real estate. Suppose a large company announces expansion with new facilities in your city. More employees means more demand for housing, which means real estate pricing will begin to rise more quickly. When housing is expensive, it could be a good time to ask your supporters about estate plans which include a portion of their income-producing properties.
• Create special marketing materials and staff training as part of your go-to-market strategy. Once you get the donor’s attention and the “light bulb” moment happens, you want to be ready to act.
• Make sure you have the mechanisms in place to accept the gifts and convert them to cash quickly.
• Conduct wealth research on your existing donor database to find those individuals who are likely to be asset-rich. Introduce the program to those donors through marketing campaigns and follow up with major gift and planned giving development efforts. E
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Chris Johnson is director of marketing for StratusLIVE in Virginia Beach, Va. His email is [email protected]. The writer is not an attorney and the information above should not be considered legal guidance.
