Vegetarian Journal 2002 Issue 2

DONATING STOCK TO THE VRG

By Roger Lowe

The purpose of this article is to encourage you to consider creative ways to donate to The Vegetarian Resource Group or other nonprofits for outreach projects. It is not intended to be used for financial, tax, or legal advice. Each person's financial and tax situation is unique, and the information in this article may not apply to your situation. Please note that there are numerous proposed tax laws that may change, or may have changed as of the printing of this article.

Before donating stock to The VRG or any other nonprofit, you may want to consult with a financial or tax professional to discuss how such actions may affect your tax liabilities.

WHY GIVE STOCK INSTEAD OF CASH?

Perhaps the best reason for donating stock instead of cash is that you may be able to make a larger gift with stock than with cash. A bonus is that stock donors often enjoy extra tax benefits that are not realized by cash donors. Also, when a stock price soars dramatically, you may want to give away that stock, which may go down, rather than a more stable investment that you would like to hold on to.

DONATING STOCK
MAY INCREASE THE SIZE OF YOUR GIFT

Many people who think they have little in the way of disposable income may have considerable stock holdings that they've acquired through inheritance or regular contributions to a mutual fund. Perhaps they have accumulated stock through an employee stock ownership plan, or through stock options that some companies offer employees in lieu of larger salaries.

These stockholders may not have large salaries or substantial amounts of cash on hand. Perhaps they are very committed to The VRG and its mission, and would like to make a donation, but a large cash gift, for whatever reason, is unfeasible.

For example, let's consider the Smiths, an imaginary family of four, whose annual household income is $50,000. The Smiths are very committed vegetarians and live frugally. Their $50,000 income must cover a mortgage, child care, health insurance, contributions to a 401(k) plan, and savings for future expenses. The Smiths donate $1,000 to The VRG every year for promotion of vegetarian options in restaurants and other food service venues. They would love to be able to make a larger gift of $10,000, but their other obligations make that seem impossible.

However, ten years ago Mrs. Smith inherited 1,000 shares of stock in Yummy Veggie Dinners Inc. The shares are in the Smiths' brokerage account. Since her inheritance, these shares have increased in value from $2,000 to $10,000, an impressive $8,000 gain.

While she would like to make a substantial gift to The VRG, it has never occurred to Mrs. Smith to donate stock. Yet by doing so, she can make that $10,000 gift she could not otherwise afford.

Even though the Smiths could never manage a cash gift of this magnitude, once they consider their stock holdings, their giving capacity increases significantly. They are now able to help The VRG, while leaving their 401(k) and savings plans untouched.

When NOT to Donate Stock:

Generally, you should NOT donate stock if it has decreased in value since you bought or inherited it. If you do this, you can only deduct its current value, not its original value. Usually it makes better tax sense to sell the stock, use the loss against other capital gains, and then donate the money.

If you have owned a stock for less than a year, the rules are different. For example, your deduction may be limited to your purchase price, and profit is treated as ordinary income, likely at a different tax rate than capital gains. If you've recently acquired the stock, you should consult with a tax and/or legal specialist to discuss your options.

SUBSTANTIAL TAX SAVINGS

Consider the Smiths' case. If they sell their 1,000 shares of stock and donate the proceeds, they would have to first pay tax on the $8,000 profit. With a capital gains rate of 10% (for example), the Smiths would owe $800, leaving them with only $9,200 to donate to The VRG, instead of the $10,000 they'd planned.

The Smiths would be much happier if they could give the entire $10,000 to The VRG. Donating the stock directly allows them to do this.

Another tax advantage comes with the Smiths' itemized deductions. If they sell the stock, pay the 10% capital gains tax, and donate the remaining $9,200, they can deduct that $9,200, yielding an income tax savings of $1,380 (assuming a 15% tax bracket). However, by donating the stock directly to The VRG, the full $10,000 can be deducted, for an income tax savings of $1,500. Both the Smiths and The VRG benefit from this arrangement.

How to Donate Stock:

Donating stock is almost as easy as writing a check. If your stock is held in a brokerage account, simply contact your broker with instructions as to what you would like to do. Each brokerage will have its own set of procedures, but often you will need to make your wishes known in writing. Your broker will let you know the simple information you need from The VRG or another nonprofit in order for the broker to transfer the stock directly to the charity.

If you own stock certificates that you keep in a safe deposit box or a lockbox, you will need to call your broker to determine how you should handle the transaction.

STATE AND LOCAL TAXES

Still another tax advantage to consider is the possible savings on state and local income taxes, which of course vary from state to state and from city to city throughout the country. In areas with higher local income taxes, such as New York, the District of Columbia, and Maryland, the savings can be considerable. For example, if the Smiths lived in Baltimore, Maryland, they would save an additional $735 in state and local income taxes, over and above the $1,500 savings in federal income taxes.

HOW MUCH DOES A $10,000 GIFT COST?

If the Smiths choose to sell their stock, pay the capital gains tax, and spend the money, they will have $9,200 left over to spend.

If they choose to donate the stock, their total income tax savings (as Baltimore residents) is $2,200.

Another way to look at these figures is to consider the $2,200 income tax savings as a consolation prize for giving up the $9,200 in spendable cash. In other words, their $10,000 donation actually costs them less than $7,000 in spendable cash.

BUT I'M IN A HIGHER TAX BRACKET. . .

For a family of four making $75,000 per year, the tax savings are even more impressive. This family would save over $3,400 in federal, state and local income taxes, and their $10,000 stock donation would cost them only $5,000 in spendable cash.

Bequests

The Vegetarian Resource Group depends on the generous contributions of our members and supporters to continue our educational projects. Though the world may not become vegetarian in our lifetimes, we realize that we are planning and working for future generations.

Your will and life insurance policies enable you to protect your family and also to provide a way to give long-lasting support to causes in which you believe. Naming The Vegetarian Resource Group in your will or life insurance policy will enable us to increase our work for vegetarianism.

The VRG is a tax-exempt organization. Bequests are tax-deductible for federal estate tax purposes.

One suggested form of bequest is:

I give and bequeath to The Vegetarian Resource Group, Baltimore, Maryland, the sum of dollars (or if stock, property, or insurance policy, please describe).

To be sure your wishes are carried out, please speak with your attorney specifically about writing the correct information in your will. If you would like to discuss the types of future projects you wish to support, contact Debra Wasserman, or Charles Stahler at

The Vegetarian Resource
Group, PO Box 1463
Baltimore, MD 21203
or call (410) 366-8343.

Since March, 2000, Roger Lowe has worked in the development offices of Baltimore-based universities.  This is his first article for Vegetarian Journal.


Excerpts from the 2002 Issue 2:

The Vegetarian Journal published here is not the complete issue, but these are excerpts from the published magazine. Anyone who wishes to see everything should subscribe to the magazine.

Thanks to volunteer Stephanie Schueler for converting this article to HTML.