Philanthropic Dictionary

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501(c)3: A charitable organization that is exempt from federal income tax under section 501(c)(3) of Title 26 of the United States Code.

 

ACH: ACH stands for automated clearing house. An ACH transfer is an electronic bank-to-bank transfer of funds.

 

Brokerage: An organization that acts as the intermediary between a stock seller and a stock purchaser.

 

Capital Assets: Capital assets are non-cash assets including stocks, bonds, and cryptocurrency.

 

Capital Gains: When you sell a capital asset for more than you originally paid for it, the result is a capital gain. Think of it like income. 

 

Capital Gains Tax: A capital gains tax is a tax on the profit made from the sale of a non-cash asset. The tax amount depends on how long you've held the asset at the time of sale, either long-term (over one year) or short-term (less than one year).

 

DAF: A donor-advised fund is a private fund administered by a third party and created for the purpose of managing charitable donations on behalf of an organization, family, or individual. A DAF is a registered 501(c)3 public charity that functions like a charitable investment account. DAFs enable a donor to give an irrevocable gift to charity and receive an immediate tax benefit.

 

DTC: The Depository Trust Company (DTC) is one of the world's largest securities depositories. Founded in 1973 and based in New York City, DTC is the largest securities depository in the world and holds over thirty-five trillion dollars worth of securities on deposit. The DTC is organized as a limited-purpose trust company and provides safekeeping through electronic record-keeping of securities balances. It also acts as a clearinghouse to process and settle trades in corporate and municipal securities.

 

DTC-enabled Brokerages: DTC Eligibility means that a public company’s securities are able to be deposited through DTC. DTC accepts deposits of securities from its participants only, who are usually clearing firms. Most brokers clear stock in-house or hire a clearing firm to do so on their behalf. All movements of securities are made to the participant’s account electronically with book-entry adjustments.

 

ETF: An exchange traded fund (ETF) is a type of security that tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same as a regular stock. An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities. ETFs can even be structured to track specific investment strategies.

 

Fair Market Deduction: The deduction you can itemize when you file taxes for the donation of an asset. For stock, this amount is equal to the fair market value of that stock when the nonprofit of your choice receives your donation. For example, if your favorite nonprofit receives your donation of 1 share of Google into their brokerage account on July 1, 2021, you would itemize a tax deduction of $2,513.13, the fair market value of 1 share of Google on July 1, 2021. For short term assets, (stock held less than a year), you would deduct the cost-basis (the price at which you purchased the shares) OR the current fair market value, whichever is the lower value. 

 

Fair Market Value: For publicly-traded stock, the fair market value of the gift is determined by the average between the high and low selling price of the stock on that day. Important note: because the fair market value of a stock changes day to day, the amount you will itemize as a charitable deduction on your taxes is based on the date the stock is received into the nonprofit's brokerage account, NOT the day you initiated the transaction. Always consult your tax professional before itemizing deductions.

 

Liquidation is when a capital asset such as stock is sold for cash.

 

Long Term Capital Gains are gains applied to assets held for over 1 year before they are sold. Long term capital gains are taxed according to taxable income thresholds, either 0%, 15%, or 20%. 

 

Non-cash Asset: Wealth that is held outside of cash accounts and therefore is less liquid by nature. This includes private stock, publicly traded stock, cryptocurrency, and investments such as a home or a car.

 

Privately Held Stock: Securities that represent the ownership of a fraction of a private company. Currently, privately held stocks are largely non-liquid, but this is quickly changing. 

 

Publicly Traded Stock: Securities that are available to be traded on the public stock market.

 

SaaS: Software as a service is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. It is sometimes referred to as "on-demand software".

 

Share: An individual stock.

 

Short Term Capital Gains are gains applied to assets held for less than 1 year before they are sold. Short term capital gains are taxed just like general income, up to 37% depending on your tax bracket.

 

Stock is an asset that represents the ownership of a portion of a corporation. Also referred to as securities or equity.  For definitions on the different types of stock available and which types Overflow accepts, please reference this article.

 

 

The above references an opinion and is for informational purposes only. It is not intended to replace investment or tax advice. Please seek a duly licensed professional for investing or tax advice.

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