Surveys rarely reveal that tax advantages are the most important reason for giving. This is good. The most compelling reason for giving is to support the mission of a nonprofit about which you are passionate. At the same time, it is in your best interest to maximize the tax benefits of your gifts whenever possible.
You might be able to avoid paying capital gains tax and provide additional support to your nonprofit of choice simultaneously.
The Power of Non-Cash Gifts
Unfortunately, to make gifts you sometimes have to liquidate assets to provide the necessary cash on hand. These asset liquidations generate capital gains tax, reducing the amount of funds available for giving and directing these funds to Uncle Sam instead.
Non-cash gifts, “asset-based giving,” simply means making a gift with something of value which the Internal Revenue Service does not consider cash. Securities-based gifts, such as stocks and mutual funds, fit into the non-cash category, as do real estate, business interests, agricultural and oil & gas commodities.
You can leverage your generosity to create a greater impact by transferring ownership of your non-cash gifts directly to WaterStone instead of selling them outright. This pre-sale gift results in more funds available to distribute to the nonprofits you support.
Noteworthy Tax Benefits of Asset-Based Gifts
There are several significant tax benefits for giving through appreciated assets:
- Capital Gains Tax Break: When an asset is sold, a capital gains tax liability is usually triggered. By gifting the non-cash asset to WaterStone, prior to the sale, you owe nothing in capital gains taxes. This pre-liquidity gifting strategy typically results in a tax liability of zero, turning a potential tax hit into a tax break.
- Bypass IRS Gift Limits: The IRS sets limits on how much donors can deduct annually. For cash contributions, the deduction is limited to 50 percent of a person’s adjusted gross income. However, for contributions of appreciated property, the deduction is limited to 30 percent.
The bottom line? Continue to support organizations that match your giving interests, but do so in a manner that reaps the greatest benefits – for you, ministries and the Kingdom. Make asset-based giving part of your overall giving program!