A recent article by the New York Times linked to below says that many investors are looking for ways to reduce their tax profiles by moving income to current years and selling stocks that have locked in capital gains. Instead of selling those stocks, and investor looking to limit his tax profile might wan to consider donating the same stock to a non profit organization. As a matter of fact, if tax rates for capital gains do go up, then stock donations become even better tax savings vehicles. Instead of selling the stocks and paying capital gains, one can donate the stock and avoid capital gains tax altogether! Of course, you would have had to hold the stock for over a year and other tax restrictions might apply (ask your CPA).
Overall, investing in stocks is a nice way to increase your wealth. Donating those stocks is a nice way to avoid paying heavy capital gains taxes come year end.
Below is an article that lists a tax shelter that Mitt Romney benefited from, but later was closed. Stock Donator still allows similar tax shelters and is available for all types of donors.
reprinted from Bloomberg:
In 1997, Congress cracked down on a popular tax shelter that allowed rich people to take advantage of the exempt status of charities without actually giving away much money.
Individuals who had already set up these vehicles were allowed to keep them. That included Mitt Romney, then the chief executive officer of Bain Capital, who had just established such an arrangement in June 1996.
The charitable remainder unitrust, as it is known, is one of several strategies Romney has adopted over his career to reduce his tax bill. While Romney’s tax avoidance is legal and common among high-net-worth individuals, it has become an issue in the campaign. PresidentBarack Obama attacked him in their second debate for paying “lower tax rates than somebody who makes a lot less.”
In this instance, Romney used the tax-exempt status of a charity — the Mormon Church, according to a 2007 filing — to defer taxes for more than 15 years. At the same time he is benefitting, the trust will probably leave the church with less than what current law requires, according to tax returns obtained by Bloomberg this month through a Freedom of Information Act request.
In general, charities don’t owe capital gains taxes when they sell assets for a profit. Trusts like Romney’s permit funders to benefit from that tax-free treatment, said Jonathan Blattmachr, a trusts and estates lawyer who set up hundreds of such vehicles in the 1990s.
“The main benefit from a charitable remainder trust is the renting from your favorite charity of its exemption from taxation,” Blattmachr said. Despite the name, giving a gift or getting a charitable deduction “is just a throwaway,” he said. “I used to structure them so the value dedicated to charity was as close to zero as possible without being zero.”
When individuals fund a charitable remainder unitrust, or “CRUT,” they defer capital gains taxes on any profit from the sale of the assets, and receive a small upfront charitable deduction and a stream of yearly cash payments. Like an individual retirement account, the trust allows money to grow tax deferred, while like an annuity it also pays Romney a steady income. After the funder’s death, the trust’s remaining assets go to a designated charity.
Romney’s CRUT, which is only a small part of the $250 million that Romney’s campaign cites as his net worth, has been paying him 8 percent of its assets each year. As the Romneys have received these payments, the money that will potentially be left for charity has declined from at least $750,000 in 2001 to $421,203 at the end of 2011.
The Romney campaign declined to answer written questions about the trust.
“The trust has operated in accordance with the law,” Michele Davis, a campaign spokeswoman, said in an e-mail.
Paul Comstock, a financial adviser to LDS Philanthropies, an arm of the Mormon Church, said that while he wasn’t familiar with the trust, Romney and his trustee might arrange to compensate the church for the dwindling amount with other gifts.
“It may be that they’ve made provisions for the charity someplace else that will make up for what this isn’t going to give them,” Comstock said.
Bloomberg News obtained the trust’s tax returns from 2007 to 2011 from the Internal Revenue Service. Romney hasn’t disclosed the trust’s tax returns and is under no legal obligation to do so. He did make some disclosures about the trust’s investments in Massachusetts filings from 2002 to 2007 and as a presidential candidate in the current campaign.
Funds held by Romney’s trust are scheduled to be distributed after the death of Romney and his wife to “a charitable organization to be designated by Romney,” according to the 2007 filing, disclosing assets he held while governor of Massachusetts. “In the absence of such a designation the funds will go to the Church of Jesus Christ of Latter-Day Saints.”
Davis declined to comment on whether Romney has designated another charity since then.
Romney has been an active member of the church, which expects members to donate 10 percent of their income. Over the years, he has donated millions of dollars of stock in Bain-owned companies to the church, securities filings show.
The church recommends such trusts on its website as one of many options for donors.
“Probably one of the advantages of a charitable remainder trust is that it helps with capital gains tax,” said Carl McLelland, an attorney in the planned giving office for LDS Philanthropies.
CRUTs were more common in the 1990s when capital gains rates were higher. In 1996, when Romney set up his trust in Massachusetts, the federal rate was 28 percent, compared with 15 percent today. At the time, a Massachusetts state resident who sold shares for a gain of $1 million could have faced a combined state and federal capital gains tax of as much as 40 percent, reducing his take to $600,000.
By contrast, if he contributed the stock to a CRUT, and it sold the shares, it typically wouldn’t owe any tax since it is a charitable trust. The CRUT could reinvest the $1 million and earn a return on the full amount.
“The power of this is the tax deferral,” said Jay A. Friedman, a partner at accounting firm Perelson Weiner LLP in New York. “The money is all growing tax free and he only pays tax on what is distributed to him.”
Concerned that CRUTS weren’t sufficiently philanthropic, Congress mandated in July 1997 that the present value of what was projected to be left for charity must equal at least 10 percent of the initial contribution. Existing CRUTS weren’t affected by the new law.
Romney’s trust was projected to leave to charity an amount with a present value of a little less than 8 percent of the initial contribution, according to an analysis by Friedman. Thus, the specifics of Romney’s trust wouldn’t have passed legal muster if it had been set up 13 months later, he said.
Because the trust’s investments have been earning a return far below its annual payouts to the Romneys, its principal has dwindled rapidly.
In 2001, five years after it was established, the trust had a value of between $750,000 and $1.25 million. Since then, it has pursued a conservative investment strategy — regardless of the ups and downs of the stock market — buying a mix of money- market funds, federally-backed bonds and federal bond funds. Since 2007, it has moved its assets entirely into cash. By 2011, its investments earned a return of $48, down from between $60,001 and $100,000 in 2001. It paid $36,696 to the Romneys in 2011.
The current investing strategy favors the Romneys over the charity because they get a guaranteed payout, said Michael Arlein, a trusts and estates lawyer at Patterson Belknap Webb & Tyler LLP.
“The Romneys get theirs off the top and the charity gets what’s left,” he said. “So by definition, if it’s not performing as well, the charity gets harmed more.”
The trustee for Romney’s CRUT is R. Bradford Malt, chairman of the law firm Ropes & Gray LLP, and manager for Romney’s various family trusts as well as his personal attorney. Ropes & Gray has also been for years the main outside counsel for Bain Capital.
If the CRUT maintains the same investing strategy, assets will continue to shrink, said Jerome M. Hesch, a tax and estate planning attorney at the law firm Carlton Fields. The trustee acted prudently in protecting against losses during a stock market decline, he said.
Nevertheless, “what’s going to go to charity is probably close to nothing,” Hesch said.
Here are step by step instructions on how to add a “Donate Stock” button to your website to enable donors to donate stock directly to your website:
To accomplish this, first you must open and create a Stock Donator Account. Then:
1. Login to your Stock Donator account
2. From your home page, you’ll notice five tabs across the middle of your screen (e.g., ‘Mission Statement / Logo’, ‘Liquidation Preference’, etc.)
3. Click on the far right tab labeled ‘Website Widget’
4. Highlight the html script within the light grey shaded box.
5. Copy the script (Ctrl + C)
6. Paste in the appropriate area within your website’s HTML. Feel free to edit the appearance of the button to be consistent with your page’s branding / look and feel etc.
viola! You’re ready to start accepting stock donations from your website!
Mitt Romney gets a lot of credit for the amount of money he has given away — as he should. No one has to give any money away, so the fact that some people choose to do so is admirable.
In 2010, Mitt Romney took $3 million in charitable deductions on his tax return, against adjusted gross income of $22 million.
- $1.5 million was a direct cash donation to the LDS Church
- $1.5 million was a stock donation to the Romney’s private foundation, which is called the Tyler Foundation. The Tyler Foundation, in turn, gave away $647,500 in 2010, of which $145,000 went to his church.
Stock Donations peak around December. Non-profit organizations that are looking to get a leg up on receiving fundraising dollars should be looking to prepare for receiving stock donations starting now! The process is very simple with Stock Donator. Open an account online for free and you can be ready to receive stock donations within 24 hours after going through our approval process.
As December is nearing, make sure you are doing everything you can for your non-profit or 501(c)3 which includes preparing for a flood of incoming Stock Donations with Stock Donator.
Stock Donations made to qualified organizations may help reduce the amount of tax you pay.
The IRS has eight essential tips to help ensure your contributions of Stock Donations pays off on your tax return.
1. If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Also, you cannot deduct contributions made to specific individuals, political organizations or candidates. See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization.
2. To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A. If your total deduction for all noncash contributions for the year is more than $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.
3. If you receive a benefit because of your contribution such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair market value of the benefit received.
4. Donations of stock or other non-cash property are usually valued at the fair market value of the property.
5. There are special rules for determining fair market value of stocks.
6. Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization and the date and amount of the contribution. For text message donations, a telephone bill meets the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution and the amount given. Stock Donator maintains these records for you if you maintain a stock donator account.
7. To claim a deduction for contributions of cash or property equaling $250 or more, you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash, a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more. Stock Donator maintains these records for you if you maintain a stock donator account.
8. Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser. This rule does not apply to Stock Donations.
Many larger non profit organization have been accepting stock donations for many years. Nancy Munger donated 25 shares of Berkshire Hathaway stock to the Henry E. Huntington Library and Art Gallery. The dollar value of the donation is close to $3 million. (see article). Warren Buffett also chooses stock donations as his favorite method of donation and recently donated $42 Million to charities via stock donations.
But what about the smaller organizations? They don’t have the necessary infrastructure to be able to accept stock donations. Until now. Stock Donator levels the playing field. Now smaller non-profits can accept stock donations online without having to worry about the process involved in opening a brokerage account, checking the brokerage account, account maintenance fees, and worrying about donation receipts. A stock donation can be processed by Stock Donator and the organization receives one check.
Just announced low 1.9% fee!
Stock Donator’s transaction fee for a successful transaction is now 1.9% which is lower than some credit cards and lower than paypal. Now organizations have an incentive in getting stock donations, your fee is less than accepting cash!
We guarantee you won’t find a lower transaction fee for accepting stock online from any other vendor.
*The 1.9% fee is still subject to the $10 minimum and to all trade fees as stated in our user agreement.
Now is a great time to advertise your organization’s ability to quickly, easily and effectively accept stock donations online!
Using Stockdonator.com, the only steps required to accept stock donations without opening a brokerage account are:
- Open a Stockdonator account
- Place a stockdonator button on their website!
It is that simple. After these 2 steps, anytime a donor wishes to make a donation. Stockdonator.com will do all the work and the only thing left for the non-profit is to cash a check.
Please see the FAQs if you have additional questions that you want answered about Stockdonator.com, including what the fees are for this service.
Without Stockdonator.com, Non profits have a lot of work to do. People often underestimate the amount of time and effort required to run a non-profit. Much of a non-profit’s time and effort might be spent on mundane paperwork and processes that distract the organization from the true good work they are doing. Take for example a simple stock donation.
If a non-profit has a donor who is willing to make a stock donation, that non-profit will have to take the following steps in order to accept a stock donation without stock donator:
- open a brokerage account (if they don’t have one already). Which involves researching which brokerage firm is most convenient and has the least fees and will probably involve making visits to the branch to sign papers.
- send the brokerage account information to the donor
- send the donor the correct stock transfer form
- from the date the form is sent to the donor, to the date the stock is received by the non-profit, the organization will have to continuously check their brokerage account for the stock to appear.
- the non-profit will then have to prepare a receipt and figure out what the correct cost basis of the stock is.
- the non-profit will then sell the stock and transfer the cash from the brokerage firm to their bank account.
Sometimes, a non-profit will have to go through all these 6 steps to receive a small donation of a few hundred dollars. And for each donation, they will have to repeat the cumbersome steps above. Sometimes the hourly rate which they pay a person to deal with the above process will be more expensive than the proceeds of the donation they received!
The small fee they pay more than makes up for the increase in productivity. The non-profit does what they do best, and stockdonator takes care of what it does best – making stock donations an automated, online process.
With the recent economic slow down, donations to charities has also suffered. Many non-profits need to re-think their fundraising efforts. Donors are looking for ways to get the most bang for their buck!
Many organizations are advertising and receiving stock donations as Donors are recognizing the significant tax advantage to donating stock. As the market rebounds, more people will have appreciated stock and will desire the ability to donate those securities.
IS YOUR ORGANIZATION READY TO CATCH THIS NEW WAVE OF DONATIONS?
Sign up for a Stock Donator account today to start receiving stock donations in the easiest way possible.