“More Saving, More Doing” – Charitable Gifts that keep on giving.

Susan MacMichael John, CFP, AIF

Susan MacMichael John, CFP, AIF

Rather than wait until the end of the year, here are some ways that you can benefit your favorite non-profit and take advantage of tax breaks that may disappear soon if some politicians have their way. By taking advantage of these tax breaks you can perhaps benefit your charity more than you might otherwise be able to do.

 Gifts of Appreciated Stock

The stock market has given us some good gains over the last five years. Why not make a gift of some of your appreciated stock to your favorite non-profit. If you itemize, you will receive a tax deduction for the value of the stock on the date of transfer and neither you nor the charity will pay tax on the gain.

 

For example, Alice wants to donate $10,000 to the local VNA. She has 100 shares of Exxon-Mobil that she could sell to make this donation. In 1975, Alice inherited the shares from her father. Since then, the shares have split 5 times and her cost per share is now only 23 cents versus the current share price around $100. If Alice sells the share, she will pay capital gains on the difference between $100 and 23 cents per share or about $15 per share. This could mean that she would have to come up with an additional $1,500 to make the $10,000 donation. If instead she donates the Exxon Mobil shares to the VNA, Alice will get the $10,000 charitable deduction saving both the capital gains tax and some additional federal income tax. The charity will receive the shares and can either sell them or hold them for the dividend income.

High income tax payers now experience a phase-out of their Schedule A deductions. Right now, however, that phase out does not apply to charitable donations. So a charitable gift of appreciated stock will still help to reduce your income taxes even if you are in the phase out bracket.

Most non-profit advisors are confident that that charitable deduction will survive any tampering by Congress. However, there is some discussion about reducing the deduction to the actual cost of shares donated. In this case, Alice’s’ deduction might only have been $23 rather than $10,000.

Matching Gifts

Your employer may have a policy of making matching gifts. Through a charitable gift matching program, your charitable gift and be doubled or sometimes even tripled.

Charitable Gift Annuities

A charitable gift annuity enables you to support your favorite non-profit and at the same time receive a stream of income for your lifetime. To set up a charitable gift annuity, the donor transfers cash or appreciated securities to a foundation, the NH Charitable Foundation, for example. The donor will receive a stream of income based on the value of the gift on the date of transfer and the donor’s life expectancy and a tax deduction for the charitable gift which is calculated based on a formula. On the donor’s death, the remainder is given to the charitable beneficiary. These gifts are complex and involve a number of actuarial, tax and legal assumptions but well worth considering in certain situations.

 About the Author:

SUSAN MACMICHAEL JOHN, CFP®, AIF® is the founder and President of Financial Focus, Inc. A fee-only financial planner, Susan established Financial Focus, Inc. in 1995. Financial Focus provides comprehensive planning services to northern New England professionals, retirees, and families. Susan has been providing personal and business financial planning services since 1985 and obtained her certified financial planner credential in 1989. She is a member of the FPA (Financial Planning Association) and NAPFA (National Association of Personal Financial Advisors). Susan was elected to two terms on NAPFA’s Board of Directors where she developed NAPFA’s “Transition to Fees” workshops and NAPFA’s “Fiduciary Oath.” She served as NAPFA’s Chair from 2010-2012 and currently is active on the industry issues committee.

Other Current Activities Include:
Director: Central New Hampshire VNA & Hospice
Advisory Board: E. Stanley Wright Museum Foundation.
Incorporator: Meredith Village Savings Bank
Advisory Board: Eastern Lakes Housing Coalition, Beck Fund

 

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