Retired dentist Thomas Cooper puts stock in his church. Literally.
When Cooper gives to Centenary, a United Methodist congregation, he does it by signing the back of an appreciated stock certificate.
The church gets a nice donation, bigger than if Cooper, 66, cashed in his long-term stock and paid capital gains taxes on it before making his donation. Cooper also gets to deduct his contributions–the appreciated value of the stock, not just what he paid for it–from his taxable income.
“It makes a nice gift, and it’s an easy way for the church to profit,” said Cooper, a professor emeritus at the University of Kentucky. “It’s also very handy when I have little pieces of stock in different companies. It saves me the trouble of selling all those little things. I just give them away and get a deduction.”
Cooper has been contributing appreciated stock to Centenary off and on for 25 years, more frequently now, he said.
The capital gains tax law passed by Congress in July means stock donors like Cooper who want to avoid paying the tax must hang onto their securities for 18 months–instead of one year–before giving them to charity.
The capital gains tax that donors will dodge when they donate securities isn’t as great as it was before July. Congress lowered the tax from 28 percent to 20 percent.
But local financial planners said they don’t expect that a 28.6 percent decrease in the tax benefit will deter people from giving stock or mutual fund holdings to charity. After all, doing so means avoiding the capital gains tax entirely.
When Centenary gets stock from Cooper or other members, the church sells it the same day, said Ward Wilson, associate pastor. “We are not in a position to make or lose money on a stock transaction,” Wilson said.
In addition to his dentistry background, Cooper also is a certified financial planner. He started taking finance classes in 1984 so he could teach his students how to handle the finances of their future dental practices and how to prepare for their retirement, Cooper said. He was certified in 1988.
“One reason it is so convenient to give stocks is there is no question in establishing value on it,” Cooper said.
If you donate a piece of antique furniture to charity, you will jump through more hoops, such as getting three or more appraisals to determine the piece’s value, Cooper said.
It’s not difficult to pick which stock to donate, he said.
“You (should) routinely give the one (stock holding) that has increased in value the most,” Cooper said.
The reason, he said, is simply to take advantage of a bigger income tax reduction.
Financial planner George Pierce of Lexington, Ky., said more often these days he is recommending clients give stocks to charities. That’s because a strong bull market, which saw the Dow top 8,000 for the first time in July, means “people have more appreciation now,” he said.
Pierce advises donors who are about to retire to give several years’ worth of stock donations before retirement. For example, if you typically give $1,000 worth of stock or mutual fund donations to a particular charity, you should give $3,000, or three years’ worth of contributions, just before you retire.
That way you get to claim the income tax deduction while in a higher income bracket. The charity still gets its money.
The idea is that you get a better tax benefit if you give to charity while you are working and in the 36 percent income tax bracket. When you retire, you might expect to drop to the 28 or 15 percent bracket.
Regular donors should notify their charities if they plan to contribute several years’ worth of donations in one lump sum, Pierce said, so the charity can plan and budget for that.
Lowell Krandell is one of Pierce’s clients who took the financial planner’s advice and gave stock to his college.
Krandell, a 60-year GTE engineer who is now retired and living in Estes Park, Colo., twice has given $400 worth of GTE stock to the Indiana Institute of Technology in Fort Wayne.
But the college got more than $400 each time because of GTE’s matching-funds program, Krandell said. GTE matched Krandell’s donation and doubled the first $200, bringing each contribution to $1,000.
Universities are popular recipients for those wanting to donate appreciated assets.
Another Lexington financial planner has advised his clients of this tax strategy for years and gives stock to charities himself.
“There is no downside I see to it (giving stock to charities),” said Ralph Scearce, president of Cambridge Financial Inc.
Scearce would not disclose which charities benefit from his stock donations. He, like many donors, asks the charities not to release his name or information on his contributions.
“Most any charity would be glad to have it,” Scearce said.
If this sounds like your kind of philanthropy, there’s a little more to it than simply dropping your stock certificate in the church collection plate. Here’s some tips from Lexington financial planner George Pierce.
Donating mutual funds to charity:
– To accept your donation, your charity must have an account at your mutual fund company.
– If you know the charity doesn’t have an account or you’re unsure, send the charity a letter explaining the donation you’d like to make.
– Enclose an application for an account with the mutual fund company, which you can obtain from the company.
– Ask the charity to send the completed application back to you.
– Send a letter to your mutual fund company explaining what you’d like to donate to the charity.
– Enclose the charity’s application and your latest account statement.
Gifts of stock:
– If you have a stock certificate for the precise amount you’d like to give to your church, you can sign the back of it and hand it to your pastor.
– But if your charity is a long-distance one, don’t send a signed stock certificate through the mail. Get a letter of authorization, called an LOA, from your brokerage firm. On it describe the stock certificate and the donation you are making. Send the unsigned stock certificate and letter of authorization in separate envelopes–for security reasons–to the charity, along with letters explaining the donation.
– Suppose you have a 100-share stock certificate but you want to donate just 50 shares. Contact your brokerage firm and arrange to turn in the larger stock certificate for several smaller ones.
