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Many donors feel that charities only desire cash donations. However, in many
situations, it would be more advantageous to the donor and as beneficial to the
charity to receive non-cash assets. The following giving scenarios are examples
of non-cash gifts that offer benefits to both the charity and the donor.
Appreciated Assets many people investing in the stock market, stock and
mutual fund shares have increasingly become an asset of choice for many donors.
Giving away assets that have soared in value has the advantage of allowing
taxpayers to shed their tax bill while being philanthropic. Generally, taxpayers
can deduct the full market value without ever reporting any appreciation as
taxable income.
Though this might sound like a strategy for the very wealthy, just about
anyone can benefit. For example, a $1000 cash gift will cut your tax bill by
$280 if you’re in the 28 percent bracket. Making the same gift with $1,000
worth of mutual fund shares that include $400 of long-term gain will save you
the same $280 plus an extra $60 in capital gains taxes.
Life Insurance Donors who only want to donate a modest sum each year may
purchase a life insurance policy on themselves and pledge the death benefit to
support the charity. The death benefit is usually more than a donor is prepared
to give in a single donation but would be manageable if paid over time. By
changing the beneficiary designation to reflect the desired charity, the donor
can enjoy the benefits of owning the policy during life, and at death, proceeds
will pass to the designated charity.
There is no immediate income tax benefit for this type of charitable gift
because the donor still has incidents of ownership in the life insurance policy
and the code does not generally allow charitable deductions for partial interest
in personal property. (However, upon death of the donor, although the death
proceeds will be included in his/her estate, a charitable deduction for the full
value of the policy proceeds is allowed.)
Retirement Plans if you plan to make a charity a beneficiary of your estate,
consider using retirement plan assets. Donating your 401(k) plan or IRA is one
of the best gifts you can give. You won’t get a tax deduction now, but the
assets will be removed from your taxable estate when you die. It can save the 55
percent estate tax and up to 39.6 percent in income tax that would be paid by
your heirs.
Whether you bequeath cash or part of a retirement plan to a charity, you
avoid estate tax on the amount of the donation. The income tax question, though,
turns on who gets what. For example, you have a $100,000 IRA, as well as
$100,000 in stock, and you want to leave $100,000 to your children and you want
to donate $100,000 to a charity. If you leave the stock to your children, they
receive it free of income taxes. But if you name the children beneficiary of the
IRA, they will owe income tax at their highest marginal tax rate (except to the
extent that you made nondeductible contributions). Either gift would give the
charity the full $100,000 tax free.
The Community Foundation works with certified financial planners. If you are interested
in more information about the many giving options available to donors, please contact
the Community Foundation office, (352)394-3818.
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Individuals who create endowed funds through the Community Foundation of South Lake County recognize the importance of maintaining a constant flow of income to address the ever-changing issues and opportunities in our community.
