Today, many charitable organizations are struggling financially so they continue to look for new ways to raise funds. Many rely on small games of chance, annual golf outings, banquets, auctions, etc. However, here is an idea that can be very fruitful, and be a win-win for both the donor and the charitable organization. The key is to educate their donors of this idea.
Every organization has its regular supporters. They may be board members, former employees, and/or folks who just have a strong desire to see that the organization thrives. Instead of them donating by sending cash, they could gift other assets, particularly for this blog . . . . . to gift shares of appreciated equities, stocks, or stock funds.
Recently, we had a client do just that. A few years ago, she invested into a mutual fund. The shares grew in value which would give her a large capital gain if she sold the shares. With a charitable gift in mind, she chose to give the organization her shares. We transferred the shares from her account to the account of the charitable organization, a local Christian camp. She got a tax deduction for the gift based on the value of the date of transfer. The organization is happy to receive such a gift. Upon
selling the shares, they requested the check sent to them for operating expenses.
Gifting Shares vs. Making a Cash Gift
Now let’s compare the advantages of gifting the shares vs. making a cash gift. In this case, our charitable lady made a gift of $5000 to the camp. She originally invested $1600, which is a gain of $3400. Now if she sold the shares herself and gave the proceeds to the camp, she would have a federal income tax to pay on the capital gain of $3400. In her case, the tax bill would be $510. So this would be a gift of just $4490. The money that otherwise would go to “Uncle Sam” is now going to the charity. Also, if she itemizes her tax deductions, she gets another tax benefit by being able to deduct $5000 on her tax return. This could save her another $750 to $1500 in federal income taxes.
Another client who gives a tithe to his church every month of $1000 learned of this more efficient way to support his church. Instead of contributing cash every month from his checking account, he gifted $12,000 of stock in January. The church got his tithe for the whole year. The advantage to the donor was avoiding paying a capital gains tax on the stock that he inherited from his parents in 1984. His cost basis was just about $1000. To him, he saved taxes of $1500.
The same can be done with other assets like real estate, collectibles, and other highly-appreciated assets. Basically it’s taking your money that otherwise would be paid in taxes and giving it to the charity, and getting the tax deduction for the entire gift.
Image credit: Werner Schnell Images