Stock Donations to Charity

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ewoldde9
ewoldde9 Member ✭✭✭
edited August 2023 in Investing (Windows)

PART ONE

Last year I hit some stop-losses and sold some stocks with considerable unrealized gains and was hit with a significant tax bill (I should have been taking some profits along the way). When I made my budget for charity this year I chose to make some contributions with shares of stock--especially those with more the 1,000% gains--instead of cash.

With a lot of head scratching I came up with the steps to record one of these donations--

  1. Make sure your broker does the transfer correctly—verify it with your charity.
  2. Calculate the value of the donation using the average of the day's high and low (per current IRS regulations). Verify this with the charity.
  3. Remove the shares in Quicken specifying the specific lot.
  4. Add shares (NOT "Buy" shares) with the original acquisition date and the calculated value.
  5. Sell shares with the date of the transfer and the calculated value—this gives you no capital gains, which is the reason for doing this in the first place.
  6. Withdrawal transaction to spend cash to a Charity category to offset the dummy sale.
  7. Add memos to everything along the way.

I found that Quicken takes care of a lot of details while doing this (stock splits, cost, etc.). However I would ask that you consider adding a new 'Action' code such as 'Stock Donation' that would do all of this for me. (You might even consider the work to add it as a charitable contribution.) It would have to ask for the specific lot to use, the (prior) date when the transfer was done (in order to check the price history), and the name of the charity to be added in memos of the generated transactions.

PART TWO

A month after my broker made one of these donations I got a call from the charity saying he had not seen the shares in the designated account on his end. (I failed to do Step #1 above.) My broker investigated and found an 'admin' had transposed digits in the account number. But fortunately it was to one of their own accounts and they were able to restore the shares and repeat the transfer.

However the shares increased in value recently so the original entries are wrong. Any suggestions on cleaning up this mess? I hesitate to just delete them and enter the new values. (How would that affect the previous reconciliation for the account?) If I try to make reversing entries, some of the items are not very clear. HELP!

(Using Windows version R50.16.)

Comments

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
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    Since your broker screwed up I'd put the onus on him to consult with his tax experts to determine what your legal (tax) position really is here, i.e., from your (and the IRS's) standpoint did you make the donation at the time that you told the broker to do so or at the time the broker found out they screwed up and actually did the transfer?

    The analogous situation that comes to mind is making a donation to charity using your credit card. You take the deduction when you make the charge, not when you pay the credit card bill a month or so later. My pure guess is that the original date of the transfer still applies, so no need to change anything, but I'm not a tax pro so make the broker's tax pro come up with the answer.

    IF the reality of the situation turns out to be that (legally) you made the deduction at the time the broker fixed his screw up, THEN the straight-forward answer to the accounting question is delete the old transactions and make the new ones. That's not going to mess up the prior period reconciliation, really. Assuming the time period from original entry to sfix of the crew up crossed month end you could make a month end note along the lines of "XX shares of ABC stock not actually donated until XX/XX/XXXX." Basically a timing difference.

  • ewoldde9
    ewoldde9 Member ✭✭✭
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    There is not really a question about the taxability because the first transfer was not to a charitable organization's account, so it could not be considered as a contribution until the correction was done, more than a month later.

    Are you sure that deleting reconciled transactions will not cause problems with a subsequent reconcilitaion?

  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
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    Deleting reconciled transactions may affect the account's cash balance. If the replacement transactions result in the same cash and share balances, future reconciliations should be OK. You will probably want to mark the replacement transactions as Reconciled.

    If you are uncertain about the impact of deleting reconciled transactions, you can back up your data first then see what happens when you make the changes. If there is a problem with the result, you can restore the backup.

    QWin Premier subscription
  • ewoldde9
    ewoldde9 Member ✭✭✭
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    Thanks.

    The steps above (the added shares with a 'dummy' sale and a withdrawal to record the charitable deduction) are all to record the donation WITHOUT affecting the cash balance,, so that should make reconciliation okay..

    Finally, for anyone not concerned whether Quicken reflects it as a charitable donation, a simple Remove for the shares is all that is needed.

    I am still recommending consideration of a new Action for 'Donation to Charity'

  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
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    A reconcile on an investment account is a cash reconciliation. Your brokerage had no cash transactions associated with the first attempt. Your Quicken version had two such transactions - the sale and the withdrawal. Those two netted to $0. Thus the account reconciliation worked for the total. Deleting those two cash transactions will still leave the same total.

    As far as share balances, your brokerage had a Remove shares for the first attempt compared to your Quicken Remove -Add - Sell for the same end status. Deleting the trio from Quicken will mean Quicken will show your account value at end-of-month higher than that eom brokerage statement. But the next month the will report an Add and a Remove (no overall change) whereas you revised Remove -Add - Sell in Quicken will net a reduction in account value.

    I don’t see deleting the prior reconciled attempt in the prior month and replacing it with the current month’s attempt throwing off the subsequent reconciliations.

  • ewoldde9
    ewoldde9 Member ✭✭✭
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    All this is true.

    I found, however, that the easiest way to correct the erroneous transfer was to go back and change the dates on the transactions and adjust the amounts to reflect the change in value (for the transactions that need a value.

    Everything worked out okay.

    Thanks all.

This discussion has been closed.