A Better Way to Give?

A Better Way to Give?

Scott Goldsmith

When you write a monthly check to Outreach, have you ever considered that there may be a better way to support Outreach than by sending a check? Maybe you have a mutual fund portfolio that has done well over the years….or maybe your grandma gave you some stock when you were a kid, and it’s just been sitting there growing for the last couple of decades. For tax purposes, you could benefit by giving appreciated assets* directly to Outreach!

Do you have appreciated assets that you’ve held for more than a year that would cause you to incur capital gains tax if you sold them?

When assets increase in value over time, you have an unrealized capital gain…. And if you sell the asset, you will have a realized gain which means having to pay tax on the difference between what you paid for it and its value when sold. Assets that have appreciated in value over time are great assets to charitably gift – instead of selling them.

When you make a gift of appreciated assets to Outreach, you get a tax deduction for the value of the gift (similar to writing a check), and because Outreach is a non-profit organization, Outreach doesn’t have to pay tax on the gain. That’s right, if you give appreciated assets to Outreach, nobody pays tax on that capital gain.

Here’s a quick example:

John loves Outreach and wants to make a year-end gift of $4,000. In John’s portfolio, he owns $4,000 worth of ABC stock that he paid $1,000 for five years ago. If John sells the stock, he could end up paying as much as $750 of federal and state capital gains tax. If John gives the stock to Outreach, he gets his charitable contribution deduction, and he doesn’t have to pay the capital gains tax.
John could then take the $4,000 of cash that he was going to give and put it back in his portfolio. John’s portfolio still has $4,000 (which he could use to buy back the ABC stock if he wanted, or he could use the money to buy XYZ mutual fund), Outreach has $4,000 from the sale of the stock, and the IRS and the State Department of Revenue miss out on collecting John’s $750 of taxes.

The devil is in the details

The strategy of gifting appreciated assets only works for assets that you’ve held for at least a year. When you give appreciated assets, the amount that you can deduct is limited to 30% of your Adjusted Gross Income and may be affected by other factors, so contact your financial advisor and/or tax accountant to make sure the gift accomplishes your financial goals based on your specific tax situation.

If you would like to talk to someone at Outreach about making a gift of stock, contact Eric Howard, ehoward@outreachindiana.org.

*For purposes of this article, “appreciated assets” include stock, bonds, mutual funds, etc.

Scott Goldsmith is a Principal and Sr. Financial Advisor with the Everyday Steward division of Ronald Blue & Co. in the firm’s branch office in Indianapolis. He can be reached at scott.goldsmith@ronblue.com or 317.810.5012. www.ronblue.com

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