Tricky Transactions: Recording Donated Stock to a Church

By Raul Rivera

At the end of this blog, I will show you how donor X was able to make a $30,000 stock donation to his church, and it effectively cost him nothing. Essentially, he made a profit of $1,100 after-tax dollars.  I will also provide you with a sample letter of acknowledgment you must give your donors. But first, we must learn the basics of recording the donation of stocks into the church’s bookkeeping records and sending an acknowledgment letter to donors.  This can get a little tricky. So, buckle down, get some fresh coffee, and take notes.    

One may feel like there are more questions than answers regarding receiving donated stock. Is it income to the church? Is it taxable? Does the church record it as an asset? If so, what is the cost basis? How does the church give a receipt to the donor? What if the church sells it later? What if the stock pays dividends? These and many other questions perpetually orbit the minds of pastors and church leaders, always present but never answered. Let me give you an example of Church ABC.  

Example Church ABC 

ABC Church received a generous donation of 200 stock shares from a church member named Donor X. However, the church faced uncertainty about the correct procedures for recording this contribution in their bookkeeping records. Unfamiliar with handling such assets, they were at a loss about valuing the stock and whether the stock should be considered income for the church. Moreover, the church was questioning the tax-exempt status of stock donations. They were also unsure about how to give a formal acknowledgment letter to the donor, a crucial step for the donor's tax records and the church's transparency. 

This lack of knowledge created a risk of inaccurate financial reporting and potential issues with compliance. It became evident that ABC Church needed guidance on managing stock donations, from proper valuation at the time of receipt to understanding the tax implications and the importance of timely, accurate acknowledgment to donors. What should ABC Church do? 

How to Record It in the Books of the Church  

1. Gather Essential Information:  
   
   • Know the number of shares donated: This is important as it will be used to determine the value of the stock donated. 
     
   • Write down the date it was donated:  It’s essential to write down this date and keep it in a safe place.  From when someone donates the stock to when you record the transaction into your books, several days, if not weeks, may pass. 
     
   • Know the value of the stock on the day it was donated: Assuming it is a publicly traded stock, the way to record it is to determine the price of the stock on the day it was donated by looking at the highest price of the stock and the lowest price on the day it was donated.  For example, if the stock price that day had a high of $33.88 and a low of $33.60, then you add the price of both the high and low and divide by two. 
      

   Here is the formula: 33.88 + 33.60 ÷ 2 = 33.74. In this case, 33.88 represents the high price for the day, and 33.60 represents the low price.  Adding them up and dividing them by two gives us $33.74.  That number is considered the stock price on the day of donation.  

   If the stock is donated on the day the stock market is closed, there will be no high or low price. Instead, you should use the closing price from the last day the market was open. 

   You can visit any financial website to see the high, low, and closing prices; these numbers are always publicly reported. 

   With this information, you know that 200 shares valued at $33.74 equals $6,748.00. 

   • Know the ticker symbol:  For example, the ticker symbol for Apple² is AAPL.  
     
2. Record the donation in your bookkeeping records: Now that you know all the facts about the stock, it’s time to record it in your bookkeeping records.
   

   Based on the numbers above, you may begin by making a General Journal Entry into your books. 
   

   • Create an income account in your chart of accounts called “Donated Securities.” 
     
   • Create an “Other Assets” account in your chart of accounts called “Securities.”¹
     
   • In the General Journal, credit “Donated Securities” for $6,748.00. 
     
   • In the General Journal, debit “Securities” for $6,748.00. 
     
   • Now run a Profit and Loss Report and check if the donation shows up as income in your "Donated Securities" account. Then run a Statement of Financial Position (or Balance Sheet) report and check if the donation appears in your "Other Assets" account called "Securities.” 
3. Send a letter of Acknowledgment: To properly create an acknowledgment letter that you will send to the donor, it should contain the following information: 

• Express gratitude for the stock donation,  
• Specify the details of the gift, such as: 
  • The name of the company 
  • The ticker symbol of the stock. 
  • The exact number of shares that were donated. 
  • The precise date on which the stock was donated.   
• You must also mention that IRS regulation does not permit your church to estimate the monetary value of the stock received. 
  

Please give us a call if you would like a free sample of an acknowledgment letter. 

What Should You do with the Stock? 

Many suggestions are circulating the internet about what is best to do with donated stock.  It is essential to understand that Income Tax Regulation 1.512(b)-1(a)-(d) states that dividends are generally excluded from unrelated business income. This exclusion applies to capital gains realized from the sale of such stock. Knowing this lets you make the best decision for your church or ministry.  

Consider the following questions before deciding on the best course of action.  

1. Is it a good company? Does the company have a strong reputation and ethical practices aligned with your church's values? 
   
2. Is it a profitable company? Is the company financially stable with growth potential? 
   
3. Does the stock pay a dividend? When I invest in a company, I make it a point to remind myself that I am not trading stocks.  I am investing in a company.  I invest only in profitable companies that pay dividends and have a great dividend history. Consider whether the company has a strong track record of profitability and consistent dividend payments. 

Knowing the answers to these questions may help determine whether to retain or sell the stock.  If retained, any future profits from the stock will be exempt from taxation for ABC Church. 

Benefits to the Donor 

When donating stock, a giver can benefit from the donation in the following ways:  

Increase in Giving Power: For instance, if Donor X contributes stock to a church that has appreciated in value, Donor X’s power of giving is increased.  For example, if Donor X buys 1000 shares of a stock at $10.00 a share, the donor spends $10,000 to acquire the stock. Then, if the stock price goes up to $30.00 a share, the value is now $30,000.  When donor X donates the stock, he gets a $30,000 deduction even though it only cost him $10,000 to buy the stock. 

Avoidance of Capital Gains Tax by the Donor: When a donor contributes stock that has appreciated, the donor will not have to pay capital gains tax on the appreciation, unlike if they sold the stock themselves and then donated the cash proceeds. 

Tax Savings and Money in Donor’s Pocket:  When a donor contributes stock that has been appreciated, not only does he receive a deduction based on the value of the stock, but he also saves money on his taxes through the deduction.  Let me explain: Donor X spent $10,000.00 to buy the stock but got a $30,000.00 deduction. Let’s assume that Donor X is a high-net-worth individual and is in the 37% tax bracket. Donor X will save $11,100.00 on his taxes when he prepares his tax return.  Ultimately, Donor X's net outcome is that he was able to make a $30,000.00 donation to his church, and it cost him nothing.  Well, actually, he made a profit of $1,100.00. Really? Yes! Really! 

The Value of High-Net-Worth Individuals 

Churches flourish when they receive generous contributions, especially from those with substantial means. Such benefactors may not always be visible in day-to-day church life, yet their financial support is crucial. They might not be actively engaged in regular church activities, but their contributions are frequently the backbone of the church's programs. In my prayers, I ask for the blessing of such donors, whom I refer to as 'Donor X.’ Based on my experience in ministry, these individuals have the power to elevate a church's work from the background to the forefront, transforming it from being a follower to a leader. I hope and pray that the Lord sends many Donor Xs to you to support your church's mission. 

Tens of Thousands of Churches Trust StartCHURCH 

Keeping your church’s books and properly recording tricky transactions is a focus of StartCHURCH. We help churches not only StartRIGHT but also StayRIGHT through our Bookkeeping Service. Each church or ministry is assigned a team of bookkeepers who properly record every transaction and show where your church spends its money. Moreover, your ministry-minded team will provide expert advice on cash flow, compliance, and more. If you have questions or need assistance, please give us a call at 770-638-3444 or click the link below to schedule a call today!

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