Foundation Blog

Tax Efficient Charitable Giving

by George Hobgood

We all want our charitable gifts to benefit the recipient as much as possible. One way to do that is to make the gift tax efficient by donating appreciated assets.

Suppose your favorite charity has expressed a need for something, but they have no room for it in their budget. And suppose you own stock for which you payed $10/share and it is now worth $200/share. If you sell it in anticipation of making a charitable gift with the proceeds, the IRS will take a portion of the $190/share gain—perhaps as much as 25 percent. Thus, you diminished the value of your donation by $47.50, bringing it down to $152.50.

On the other hand, you can donate the stock itself, which the charity can then sell tax exempt and realize the entire $200 value of the stock. Some charities, such as Covenant Presbyterian Church and the Covenant Foundation, are happy to have stock traded on one of the major exchanges but may have to turn down gifts of other appreciated assets because they lack the expertise and/or time to value and dispose of the asset. 

If you have any doubt, check with the charity before you make a gift commitment. If there is a question about whether the church can accept a specific gift, ask the church office.

Other Ways to Give in a Tax-Wise Way

There are two types of Individual Retirement Accounts (IRAs). The original standard IRA is funded with pre-tax dollars; a Roth IRA is funded with post-tax dollars. 

The IRS stipulates that each individual over a certain age (usually 70½) take an annual amount, called a required minimum distribution (RMD), based on life expectancy so the IRS can tax it. The withdrawal is taxed as ordinary income, but most folks are in a lower tax bracket once they retire.

To avoid paying taxes on the entire RMD, you can donate part or all of it to a charity. You will be taxed only on the part of the RMD not donated. This charitable contribution portion is called a “qualified charitable distribution (QCD).” You donate pre-tax dollars and avoid paying income tax. Since the QCD is not included in your income, it also helps minimize Medicare costs.

Should the owner of the IRA pass away before the funds are depleted, the heirs receiving the IRA, other than the owner’s spouse, will owe taxes on the value of the IRA. (They may be able to stretch out the payments over several years.) Again, if the IRA is donated to charity, the charity receives the entire IRA without paying any tax on it. This may be an attractive thing to do if there are no heirs or heirs who do not need the money.

Another alternative is to allocate a percentage of the IRA to the charity as a contingent beneficiary. Should one spouse predecease the other, the surviving spouse can still have access to the entire IRA. However, upon that spouse’s death, some of the IRA can pass to heirs along with a percentage you choose to go to the charity.

Many worthwhile charities are in need of financial assistance. One that we would like for you to keep in mind is the Covenant Presbyterian Foundation. Over the years, the Foundation has provided invaluable financial assistance to Covenant Presbyterian Church.

George Hobgood is a member of the Covenant Presbyterian Foundation’s board of trustees. For more information about Covenant Presbyterian Foundation, contact Duane Dube or any Trustee: Elizabeth Christian, Everard Davenport, Randy Erben, George Hobgood, Megan Poore, Scott Ream and Kristin Schell



Posted by Stephanie Schultz at 10:17 AM
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