Gifts of Stock to the Ayn Rand Institute: A Primer for ARI Donors
Note: Detailed instructions on transferring shares of securities to ARI are included in this article.
Why give appreciated stock instead of available cash?
To avoid paying tax on the appreciation. If you own stock that has increased in value since you acquired it, it has "appreciated." When you sell that stock, you realize a type of investment income known as "capital gain," i.e., the difference between the price you originally paid for the stock (your "cost basis") and its current market value. On stock held more than one year, that capital gain is subject to federal tax at rates of up to 15% (plus applicable state tax).
However, when you contribute the stock to a tax-exempt organization such as the Ayn Rand Institute, you are no longer liable for the capital gain tax. In addition, you may claim a charitable deduction for the current market value of the stock.
Example: A donor wants to make a gift of $10,000 to support ARI. He has stock worth $10,000 which he purchased several years ago for $2,000. He is in the 28% income tax bracket, his capital gain would be taxed at 15% if he sold the stock, and he itemizes deductions on his federal income tax return.
Scenario A: He contributes $10,000 in cash and claims a charitable deduction of $10,000, which is worth $2,800 to him ($10,000 x 28%). The tax-adjusted cost—i.e., the true economic cost of the gift—is $7,200 ($10,000 - $2,800). The Institute has $10,000 to spend on the advancement of Objectivism.
Scenario B: The donor contributes the $10,000 worth of stock and claims the same $10,000 charitable deduction, obtaining the same $2,800 tax savings. In addition, the $8,000 taxable gain disappears; he will never have to pay tax on the gain, and thus saves $1,200 more in tax ($8,000 x 15%). The tax-adjusted cost of the gift is now $6,000 ($10,000 - $2,800 - $1,200). ARI sells the stock with no tax implications and has $10,000 to spend on the advancement of Objectivism. To look at it another way: Because of the tax advantages, a donor can afford to contribute more value in appreciated stock than he would have been able to contribute in cash.
What if I would like to take advantage of the tax breaks, but don't want to reduce my stock holdings?
It still makes sense to give stock instead of cash. Let us say you contribute stock to ARI and then purchase more stock to replace what you contributed. You have realized the tax savings—both income and capital gain—and your cost basis in the replacement stock is now equal to its current market value. Thus your potential capital gain tax liability is limited to the future appreciation of the stock.
May I contribute appreciated stock but retain a stream of income?
Yes. If you use stock or other appreciated property to fund a "life-income" planned gift, you may achieve similar tax advantages as well as lifetime income for yourself and/or another individual. For more information about such arrangements, please contact Kathy Cross.
How do I go about contributing stock to ARI?
If the stock is held electronically at a brokerage firm, follow the instructions below. (If you have physical possession of the stock certificate(s), a different procedure is required. For details, contact Kathy Cross.)
1. Decide which stock, and how many shares, you wish to contribute. The greater the appreciation, the greater the tax advantage to you. However, other factors may influence your decision about which stock(s) in your portfolio you wish to contribute.
2. Send a letter of instruction to your stockbroker; see sample letter of instruction. Describe the stock, indicate that you want to contribute the shares to the Institute, and instruct that they be transferred to ARI's account at Merrill Lynch, Pierce, Fenner & Smith, Inc.; the DTC number is 5198; the Institute's account number is 5F6-95899.
Note: It is very important to transfer the shares of stock directly to ARI; if you sell the stock and contribute the cash proceeds, you will have realized the capital gain and therefore be subject to tax.
3. Send a copy of the letter to ARI, or call and let us know that you are making a stock gift. Otherwise it is difficult for us to identify who contributed the stock.
4. Your part is done. When the stock has been transferred by your broker and deposited into ARI's account, the gift is complete. ARI will then send you an acknowledgement appropriate for tax purposes.
How do I substantiate my charitable deduction with the IRS?
To claim a deduction, you must itemize deductions on your federal income tax return. Under current law, non-itemizers may not claim charitable deductions. If the value of your contribution is more than $500, you must submit IRS Form 8283 with your tax return. Gifts of stock are deductible up to 30% of your adjusted gross income. If your gift exceeds the 30% ceiling, you may carry over the excess deduction for up to five additional years.
Determine the value of your contribution for tax purposes by first calculating the average of the high and low price per share on the date of the gift (i.e., the date the transferred stock arrives in ARI's account). Then multiply the average share price by the number of shares you contributed.
How do I go about contributing appreciated property other than stock to ARI?
Other non-cash assets which may be appropriate as charitable gifts include mutual funds, bonds, and other financial assets; real estate; life insurance; tangible personal property; business interests. For donors who contribute such assets, additional IRS filing and substantiation requirements (such as a qualified appraisal) may apply. For more information, consult your financial advisor or contact Kathy Cross.
For more information contact Kathy Cross, Gift & Estate Planning Manager at ARI, at 732-242-9408, or firstname.lastname@example.org.
The information on this site is not intended as legal, tax or investment advice. For such advice, please consult an attorney, tax professional or investment professional.
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