Financial Support

"Like good stewards of the manifold grace of God, serve one another with whatever gift each of you has received."  I Peter 4:10

Giving More By Giving Securities

Many people find that the best way to make charitable gifts is in the form of marketable securities that have increased in value.  It may be possible to make your usual gift at lower cost or even a larger gift at no increased after-tax cost.

After changes made by tax legislation passed in 1993, giving property other than cash may be more attractive than ever.  Congress restored full deductibility for most gifts of appreciated property for all taxpayers who itemize deductions.  Read on to find out more about the advantages of giving securities.

Double Tax Benefits

One reason why it can be economical to make a gift of securities stems from what might be considered  a "double tax benefit."

When you give securities (stocks, bonds, or shares in a mutual fund) that have increased in value and have been owned long enough to qualify as long-term property, you are entitled to a federal income tax deduction based on the current fair market value of the security, regardless of what it originally cost.

For a gift of $1,000 in securities, this savings alone could  amount to as much as $396 or more, depending on your income tax rate, income, and number of personal exemptions.

The second benefit comes from the fact that a gift is not a sale.  As a result, you do not have to pay capital gains taxes on any increase in value in the securities given.  The tax would be due if you sold them.

Bypassing the tax altogether can be a major benefit.  For example, if the securities mentioned above were purchased for $300, tax on the $700 increased in value would be bypassed.

Give More at the Same Cost

To arrive at the total tax savings for a gift of appreciated securities, count both the charitable deduction and the capital gains tax bypassed.  Thus the net cost of giving can be significantly lower when the gift is made in the form of appreciated property rather than cash.

The exact cash savings depends on how much the asset has increased in value, your tax rate and level of income, and other factors.  Keep in mind that the net cost of giving $1,000 cash for a person in the 39.6% marginal income tax bracket is $604 ($1,000 - $396 savings).

If that person has $1,500 of securities (which cost, say, $700), he or she can give them at a net cost of $682, very close to the cost of a gift of just $1,000 in cash.

How Is It Done?

Making a gift of publicly traded securities is easy.  There are several ways to go about it, but the basic proceedure involves completing a form your stockbroker can supply and then notifying the chartible recipient of your plans.

When Should I Give Securities?

The timing of your gift of securities may simply be determined by your desire to give and the needs of the chartitable recipient.  Or you may decide to give when tax considerations indicate the gift will be especially advantageous.  Many gifts of securities are made in the late summer or fall as donors evaluate their tax and financial situations before year's end.

The value of your investments may also play a part in determining when you should give.  Ideally, for maximum tax benefits, you should give securities you would otherwise plan to sell.

If you have a substantial capital gain and think the security will continue to increase in value, consider giving the asset and then use the tax savings and cash you might have given to purchase new shares of the security.  This could reduce the capital gains tax due on a later sale if the asset continues to increase in value and can help you you establish a loss if the value should drop. 

If your securities have decreased in value, it is usually wise to sell them and give the proceeds.  You may then receive tax benefits from all or a portion of the capital lost.

Give Only the Increase in Value

If you have securities that have greatly increased in value but are worth more than you can comfortably give, consider what is known as a bargain sale.

In this case, you sell the security for less than current value (your original cost, for example) to a charitable organization or institution.  You  thus recover all or a portion of your investment in the assset.

The difference between the fair market value and the amount you received is then deductible as a charitable gift. 

Reviewing the Benefits

As we have pointed out, securities (and certain other properties that have increased in value and been owned long enough to qualify as long-term property) may be one of the most efficient and effective forms your charitable gifts may take.  You must report only a portion of the capital gain for tax purposes.

In Summary: 

• You may be able to give the same amount at less than a gift of cash. 
• You may increase the size of your gift while actually lowering your net after-tax cost.
• You may be able to reduce or eliminate higher taxes you may experience under recent tax law changes.
• You may conserve cash you would have given, making it available for other purposes.

For Further Information

More detailed information regarding gifts of securities and other non-cash properties is available.  Check with your tax advisor or stockbrocker, or contact us to discuss gifts you may wish to make or for help in finding the information you need.

Finance/Development Department
Christian Life Ministries
2756 Lakeshore Avenue
Little Canada, MN 55117

Neither the author, nor this organization is engaged in rendering legal or tax advisory service.  For advice and assistance in specific cases, the services of an attorney or other professional advisor should be obtained.  The purpose of this publication is to provide accurate and authoritative information of a general character only.  Watch for tax revisions.  State laws govern wills, trusts, and charitable gifts made in a contractual agreement.  Advice from legal counsel should be sought when considering these types of gifts.
 

Christian Life Ministries 2756 Lakeshore Avenue, Little Canada, MN 55117
Phone: 651-649-3538, Fax: 651-917-4151, email: welslfltcc@usfamily.net