Why Mary Smiled posted by jwatson on Jun 30, 2011

Mary Thompson decided to give $10,000 to her local church. But first, she donned her gift-planning hat.

She remembered that, usually, it’s better to give appreciated stock than write a check for the same amount. Locating a recent statement from her stockbroker, she reviewed her list of holdings. She noted that her stock in OPQ Corporation was valued at $100 per share. Checking the evening paper, she found that the stock was still trading at that price.

Years ago, Mary purchased $10,000 of OPQ stock. Since then, through stock splits and remarkable appreciation, her investment has grown to 1,000 shares valued at $100,000.

She considered her options. If she sold 100 shares of stock, she would have $10,000, less the sales commission, to give the church. However, at tax time, she would owe capital gains tax on the growth portion of the stock, the appreciation amount. Since the 100 shares had a cost basis of $1,000, the taxable amount would equal $9,000. Applying a capital gains tax rate of 28 percent to the $9,000, she calculated a tax bill of $2,520.

Now it’s true she would likely be able to eliminate this tax with the charitable deduction resulting from her gift. But, then the deduction would not be available to offset other taxable income.

Mary smiled. She took pleasure reminding herself that, instead of selling the stock, she could instruct her broker to transfer 100 shares directly to a foundation. Then, because the foundation is a duly qualified non-profit organization, it could sell the stock without incurring any taxes on the gain and then distribute the proceeds to Mary’s church. And what’s more, she would receive a charitable tax deduction for the full fair market value of the stock, a value based on the mean trading price of the stock on the day of the gift.

If she sold the stock and gave the cash, she’d receive only the one benefit of the charitable tax deduction. But if she gave the stock directly to the foundation to benefit her local charity, she’d receive two benefits: the charitable tax deduction and the bypass of capital gains.

When she bounced the idea off her accountant, he affirmed her prudence and, knowing her healthy financial condition, encouraged her to proceed. He also reminded her that the charitable tax deduction of $10,000 could only be applied against 30 percent of her adjusted gross income, whereas a cash gift has a deductibility ceiling of 50 percent. However, if she wasn’t able to use all of the deduction in one tax year, she could carry forward the unused portion into the next year, up to five years.

What about you? Do you have appreciated assets such as stocks and bonds that you could make a tax-wise gift with? To learn more, please visit our website at eeworkslegacy.org/stock. For personal assistance, please call (800) 876-7958 to reach a representative from PhilanthroCorp. For over 20 years, thousands of believers have confidently used PhilanthroCorp ‘s expert gift planning services.