brown on green, A Regular column about finances

Cheap Gifts

This is not an article about how to give cheap gifts for birthdays and Christmas! It is about how to make a significant gift to ministry that doesn’t cost the giver as much from a tax standpoint. Currently, our denomination has many ministries raising money for large capital projects. Welch College has a capital campaign to retire the debt on their new campus. At least two camps are raising funds for major buildings, and a number of large churches are in building campaigns.

All of these ministries need large gifts. How can a major gift be made? Every major gift can be discounted through the charitable gift tax deduction. For instance, a cash gift of $200,000 will cost someone in the 35% tax bracket only $130,000 when you consider the tax benefit of the charitable deduction. However, even cheaper ways to give are available.

Consider a person who has stock valued at $200,000 for which he or she only paid $10,000 decades ago. If this stock is given to a ministry, the donor still receives a tax deduction of $70,000 in the 35% bracket but avoids 20% capital gains tax on the $190,000 of growth. This amounts to another $38,000 in savings, reducing the actual cost of the $200,000 gift to $92,000.

Another, even cheaper, way to give is through highly appreciated real estate. Consider a rental home now valued at $200,000 though purchased for $100,000 years earlier. Perhaps the value of the land at the time of purchase was $10,000, and the house itself was $90,000. Again, the savings due to the charitable gift deduction is $70,000 but the capital gains tax savings are split in this situation.

The house has been completely depreciated, so a $90,000 recapture of depreciation capital gains tax is due at 25% or $22,500. Regular capital gains tax of 20% is also due on the increased value of $100,000 or $20,000. That makes the true cost of this $200,000 gift $87,500

However, the “cheapest” gift comes from the individual who owns a business and gives a portion of closely held C corporation stock to ministry. Consider this scenario. An individual has a company where the stock appraises for $2 million. A thousand shares outstanding are each worth $2,000. The donor owns 61% of the outstanding shares or 610 shares worth $1,220,000. Since the owner formed the company in his garage, the basis in the stock is practically zero.

A gift of $200,000 will equal 100 shares, so the donor still owns 510 shares of the thousand and retains control of the company. In this case, the donor still receives a $70,000 charitable deduction and avoids capital gains tax of $40,000 on the gift of stock. Here is the best part. The ministry then sells the share back to the company. This means the donor pays nothing out of pocket to give the $200,000.

Again, the donor receives s $70,000 tax deduction, avoids capital gains of $40,000, and pays zero dollars out of pocket while the ministry realizes a $200,000 gift.

At no time does the donor lose control of the company. Temporarily, the donor has 51% of the stock while the ministry holds it. When these shares are sold back to the company these shares are retired. This means the owner of the company now owns 510 shares of the 900 outstanding or 57%.

We have ministries that need major gifts now. Consider using one of these generous methods of “cheap giving” to further the Lord’s work.

About the Columnist: David Brown is director of Free Will Baptist Foundation. To learn more about the grants program, visit www.fwbgifts.org.