Cash gifts are commonly seen as the only way to financially assist Iron Sharpens Iron. During a period when many stocks are experiencing high returns, stock giving may be an effective addition or alternative to cash giving.
If you own any appreciated property, like stocks, mutual funds, bonds, or real estate, there are three major advantages to giving the asset versus giving cash:
- Ability to make a potentially larger gift.
- For many of us, the desire to give exceeds the amount of cash we have available to give. If you have access to investments that can be transferred to fund a gift, without taking from cash flow used to meet your budgetary needs, your giving is not limited to cash available.
- Increase in cash flow.
- Cash flow often presents a challenge for many individuals. Even an individual with substantial net worth may have difficulty meeting current financial obligations. Highly appreciated property may not produce substantial cash flow. Many times, stocks and bonds produce cash flow, in the form of dividends, of only one to two percent of their net worth. A gift of these types of properties may result in an immediate tax deduction, which increases cash flow. A tax deduction can offset long-term cash flow loss for a number of years.
- Example: Tom Smith owns stock valued at $100,000. This stock is currently paying dividends of $2,000. Tom gifts the stock to Iron Sharpens Iron. In his 46.6% combined federal and state tax income tax bracket, he will reduce his income taxes payable this year by $46,600, or a current cash flow increase of $44,600. Obviously, his cash flow will be reduced in future years by the $2,000 in dividends, but it will be many years before the future cash flow would equal the current benefit of the tax savings.
- Avoidance of capital gains tax.
- If you sell appreciated property and make a gift of the proceeds, you will be taxed on the appreciation. This is called a capital gains tax. But that tax is avoided when you give appreciated property directly to Iron Sharpens Iron. Note that your charitable deduction will be for the full fair market value of the property at the time of the transfer.
- Example: Mike Jones purchased real estate in 1978 for $20,000, and today it is valued at $100,000. If he sold the real estate, he would be taxed on the $80,000 gain. In an assumed 27% combined federal and state capital gains tax bracket, he would pay a tax of $21,600, leaving only $78,400 to give.
- Assuming Mr. Johnson made a gift of the remainder, he would realize an income tax savings of approximately $36,500, assuming he is in a 46.6% combined federal and state income tax bracket.
- Let’s assume, however, that instead of selling the real estate, he gave it to Iron Sharpens Iron and the ministry sold the property. Mr. Jones would receive an income tax charitable deduction for the full value of the asset, or 100,000, thus saving approximately $46,600 in taxes. In addition, he would avoid the $21,600 tax on the capital gains.
- There is considerable difference. Generally, the greater the appreciation of the property, the greater your benefit of giving the property rather than selling it and giving cash.
For more information about non-cash giving, contact Brian Doyle at 1.800.451.9239 or email here.