Why does giving securities often make more sense than giving cash?

If you own securities, such as stocks, bonds, or mutual fund shares, it could be to your advantage to give the securities instead of cash to India Gospel Outreach. This is only true for appreciated securities—those which have gone up in value since your purchase—and which you have held for at least 12 months since purchase.

The best way to explain this is by example. Assume you own stock with a current value of $10,000, you have held the stock for at least 12 months, and your purchase price for the stock was only $3,000.

If you give that stock to IGO, you will receive a charitable deduction for the full $10,000. If you happen to be in the 35% income tax bracket, that will give you a tax savings of $3,500.

In addition, you avoid paying the capital gains tax you would have owed had you sold the stock instead of giving it. Capital gains tax is applied to the increase in value from the time you acquired until the time you sell. In our example, capital gains would be $7,000 ($10,000 minus $3,000). Therefore, if you are in the 20% capital gains tax bracket, you avoid additional taxes of $1,400 (20% of $7,000).

If you sell the stock, you will receive only $8,600 after paying capital gains tax. By giving the stock to IGO, you avoid $1,400 of capital gains tax and you receive a tax deduction of $3,500. But IGO gets the full value of the $10,000 gift to use in our ministry to reach India with the Gospel.

Your situation will be different, of course, but as long as the value of the security when given is greater than its value when purchased, and you have held it for at least a year, the cost of the gift to you will be less than its value to IGO. Always check with your tax adviser before transferring securities.

What if I like this stock and want to keep it?

It can still be to your advantage to give it to IGO. Here’s why. Continuing with the example above, in the future, if you ever decide to sell the stock, you’ll have a cost basis of only $3,000. You will have to pay capital gains tax on the difference in value at the time you sell it. If the value keeps increasing, that could be substantial.

But if you give the stock to IGO, you can buy it in the market on the same day for virtually the same price. In our example, this increases your cost basis to $10,000. Now, should you decide to sell the stock in the future, your capital gains will have been reduced by $7,000, saving you $1,400 in capital gains tax if you are in the 20% capital gains tax bracket at the time you sell.

IRA Rollover

An individual age 70½ or older with an Individual Retirement Account (IRA) may contribute up to $108,000 total annual from that account to a qualified nonprofit ministry, like India Gospel Outreach.

Why might this be beneficial to the individual?

• Starting at 73, individuals must begin taking distributions from their IRA’s, which could put them in a significantly higher tax bracket. A Charitable Contribution reduces the required distribution by the amount of the gift, avoiding higher income and possibly higher taxes.
• If an individual takes the distribution as taxable income and then donates the same amount to a ministry, the amount they can deduct from taxes will be limited to 60% of adjusted gross income (AGI), which is now higher because of the IRA distribution, potentially causing a high tax bill. Even though the remaining gift deduction can be carried over to future years, the deduction will likely not be as valuable.
• If an individual takes the distribution as taxable income, the increased (AGI) will also increase the amount of medical and miscellaneous expenses that cannot be deducted from taxes because of the percentage of AGI floor on these types of expenses.

What are the requirements for making an IRA Charitable Contribution?

• The IRA owner must be 70½ or older.
• The contribution must be made from a traditional IRA.
• The contribution must be made directly from the IRA to the ministry. It cannot be distributed to the IRA owner first.
• The contribution must be made to a qualified charity. Most nonprofit ministries qualify. But contributions cannot be made to private foundations, donor advised funds, or supporting organizations. IGO qualifies.
• Both husband and wife can donate up to $108,000 from each of their IRA’s each year or a total maximum of $216,000.

Keep in mind that since you are not receiving the distribution as income, this contribution from your IRA is not a tax deductible gift.

To learn more, check with your tax adviser. This educational illustration is not professional tax or legal advice.