Blessed Be the Tithe That Unbinds Liability

“Appreciation” is the operative word when it comes to making donations to religious organizations.

Tax consultants, financial planners and church administrators agree that putting appreciated gifts such as stocks or real estate into the offering plate provides the best benefit to both churches and their members.

Ben Mays is business administrator for First Baptist Church of Springdale and The Church at Pinnacle Hills, which have about 12,000 members. He said for any gift of $250 or more, churches must issue members a receipt that states they have not received any additional benefit other than a “spiritual” one for their contribution.

Donors are then allowed to deduct the tithed money from their taxes, either entirely or partially depending on their tax bracket.

But Mays said the most advantageous type of large gift is one that has appreciated. If a member, for instance, years ago bought 100 shares of Wal-Mart Stores Inc. stock for $10 each, the initial investment was obviously $1,000. Then if the stock was worth about $50 per share today, the $4,000 capital gain liability is avoided by a donor who gives the stock directly to the church.

Members who cashed out first, then gave to the nonprofit would incur capital gains taxes. The only provision for the direct stock gift is that the shareholder must have owned the stock for at least one year.

“The church is then able to take your $1,000 investment to its broker and cash it in for $5,000,” Mays said. “The contribution is deductible at the value of the stock on the day of that contribution. It just makes much more sense from a business standpoint to give an appreciated piece of property than selling it first.”

Bill Ackerman, owner and certified estate planner at Tax Concepts Inc. in Fayetteville, said more complicated vehicles for giving are also available. He said as long as a donor is consulting with a certified estate or financial planner, someone with a degree in tax law or a very strong accounting background, they’re probably getting good advice.

He said charitable remainder trusts and life insurance policies that make a church the beneficiary are other ways to give donors some real tax advantages.

“There are ways of giving away wealth under current law that are favorable to both your heirs and the institution of your choice,” Ackerman said. “Giving money to charities avoids the gift tax, and there are no limits on gifts to churches. Otherwise, each spouse can gift up to $10,000 to as many individual family members as they’d like each year before incurring a gift liability.

“Or, they can gift $650,000 each in one lump sum if they want to use their unified tax credit. But again to charities, there is no limit.”

The unified credit is set to scale up to $1 million for each giver by 2005.

Ackerman said the nature of the assets being gifted and what the donor wants to accomplish is more important than the contribution’s amount. Mary Ann Greenwood, a CPA and president of Greenwood & Associates Inc. in Fayetteville, said structuring contributions into a client’s financial plan can at times be tricky.

During the 1980s, the Episcopal Church asked its members not to invest in companies that were engaged in business with the South African government. That was before the end of apartheid. This summer, the General Board of Pension and Health Benefits of The United Methodist Church of Evanston, Ill., along with other shareholders, pressured Wal-Mart to adopt stricter regulations against vendors who may take advantage of sweatshop labor.

The measure failed, and had little affect on Wal-Mart’s stock.

“Proactive interaction with corporate management is the best stance for investors who oppose a social issue related to a company,” Greenwood said. “If you sell the investment, your voice carries less weight. Let them and your financial planner know how you feel, and there might be some other way to accommodate the concerns.”