I’m a Mormon, and so I pay tithing to the LDS church. For me, this means 10% of my gross income. That is a lot of money, so I take advantage of any tax deductions that the government feels inclined to offer to those that make charitable donations. In the past I’ve just written a check, but I recently learned that donations can be made in kind. Back in the day that meant pigs, chickens, corn, things like that, but nowadays it means stocks and real estate.
I unfortunately do not possess any real estate, so I decided to donate some stock. Why not just write a check? Tax benefits! Lets say I bought stock XYZ a few years ago for $10 per share. It is now worth $50 per share. I could sell the stock and pay taxes on the $40 profit per share, or I could donate them to a charitable organization, avoid capital gains tax, and still get a deduction for the full value of the stock.
So here is a real life example from my portfolio: In 2010 I purchased some shares of VTI for a total price of $7,213.39. These shares are now worth $8,038.75, for a total increase of $825.36. My marginal tax rate is high enough that I’m required to pay capital gains tax on my investments, which is currently 15% of the profit, so if I just sold these shares then I’d be on the hook for $123.80 in federal taxes. By donating directly to the church, I get to keep that $123.80 and I still get a tax deduction for the full $8,038.75.
There are, as always, caveats. My understanding is that this only works for stocks that you have held for at least one year and thus qualify as long-term stocks. For 2012 you won’t pay any long-term capital gains taxes unless your marginal tax rate is 25% or higher, so you won’t see a benefit if your marginal tax rate is less than 25%. In 2013 everyone gets to pay long-term capital gains taxes regardless of your marginal tax rate, so this would work for everyone at that point. Of course I’m not a tax professional and I’m certainly not your tax professional, so you’ll want to talk to your tax professional before trying to utilize this part of the tax code to your advantage.
There are also a few other benefits to donating stock:
Anyways, I decided I’d give it a shot. I have some long-term stocks that are worth more than I paid but I no longer want in my portfolio, so I decided I’d donate them as tithing. The LDSTech wiki says to start by calling the Donations-in-Kind department, so that is where I started. I dialed the number and was promptly greeted by an employee of the church. I let them know that I wanted to make a donation in kind and that I’ve never done it before. He asked what brokerage I use, I told him, and he quickly emailed the information I needed for the transfer. Maybe a 2 minute phone call, completely painless.
The email contained a form-fillable TD Ameritrade PDF and a Word doc with the Church’s account number and instructions. Filling out the form took maybe another 5 minutes (mainly due to triple checking it to make sure I didn’t mess it up). I dropped it in the mail on 9/26, then replied to the Church’s email with my name, address, and summary of my donation (per their instructions).
On 10/1 (5 days later, darn slow postal mail), the shares were transferred out of my account and into the Church’s, and today (10/9, 13 days after I started the process) I received my receipt from the Church. This receipt is vital to keep on hand for tax season, as the IRS isn’t going to be happy about you claiming you made a donation that you don’t have proof of. One odd thing to keep in mind is that the Church doesn’t provide a value for your donation. Instead, the IRS expects you to use the average of the high and low price of the stock on the day it was transferred.
Anyways, the process was really easy. I think I’m going to try doing this a couple times a year instead of paying tithing with a check to my local ward. I loathe checks and feel sorry for the poor ward clerks that have to count up the money. This just seems easier for everyone.