How to get $1. 00 charitable value for 50 - 60 cents

joyfulguyJanuary 2, 2014

Proviso: This situation relates to current conditions in Ontario, Canada, at end of 2013 and may not be relevant to your situation.

How to get $1.00 charitable value for 50 - 60 cents

When I sold mutual funds for a short while, almost 30 years ago, one major fund manager said that he liked to buy a dollar for 60 cents or so. That is, they had put out standing orders to buy certain quality stocks at prices much below the rates available at the time, but which they felt might be when the prices had gone down. They liked to buy stocks on sale.

This message is how to make your charitable dollar go farther.

When you buy food in the grocery to put into the box for the Food Bank at the door, or in the firehall or your church ... you pay retail price of $1.00 ... and you choose what product to buy, perhaps not what the food bank would prefer.

In this area some food stores encourage customers a couple of times a year to add some contribution to a charity at the checkout, so a contribution of 80 cents or so will go to the charity ... and they'll buy food at wholesale price. Plus, the Food Bank chooses foods for which they know there to be the greatest need. The grocery gets the credit for the charitable contribution.

If you visit the food bank or other charity and write them a cheque for the 80 cents or so that allows them to buy food at wholesale price, you get the charitable receipt: if you're in 25% income tax bracket, that reduces your after-tax cost to 60 cents ... but paid from a bank account stocked with usually after-tax money, earlier.

Would you like to achieve that same result at an even lower cost to you?

If you own a stock or mutual fund that has appreciated in value, sell it and put that money into the bank account which you used to write the cheque to the food bank, you have to pay federal and provincial income tax on the capital gain during the years that you owned it.

But when I take a stock, for example, in a Canadian bank that I bought 47 years ago for $4.17 per share, whose price has gone up as high as about $107.00, also down and sideways and now is worth about $90.00, when I transfer that stock to a charity, they give me a charitable receipt for the $90.00 and I avoid paying income tax on the $85.83 capital gain: I'd ordinarily pay tax at regular rate on half of it, $42.92, probably about $10.00 or more. As I saved about $10.00 or more on the $90.00 that I gave to the charity, that'd be a little less than another dime off of the 60 cents that was my after-tax cost when I wrote the 80-cent cheque to the charity, using after-tax money.

By the way - the stock originally paid me a dividend of 10 - 12 cents annually, at a low tax rate, (1) was paying me $3.08 per year in '07, at an even lower tax rate, when I could have sold the stock for $107.00, later increased it to $3.48, before they were involved in the money troubles in the U.S., but didn't decrease the dividend, as many feared that they might, as the value skidded down to $40.00.

After about three years they began to increase the dividend again, and now it pays me $3.84 per share per year. If I can stay alive for a few more years ... maybe they'll pay me each year the $4.17 that I paid for each share 47 years ago!

1. Interest earnings are taxed at top rate - with no offsetting credits.

Some say that this is too complicated: my email address is at my profile, if you wish to ask questions.
Good wishes for a wonderful New Year ...

... from ole joyful

This post was edited by joyfulguy on Sun, Jan 12, 14 at 20:24

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I have to take a Minimum Required Distribution every year from my retirement account since I turned 69-1/2. However, every year Congress allows an up to $100,000 non-taxable distribution from such retirement accounts to whichever IRS-sanctioned charity or charities you specify.

Since we don't even approach using an itemized deduction on our income tax to take advantage of a non-taxable charitable contribution there, but rather have to use a standard deduction, this is a neat way to take advantage of the US tax laws & a win for the the charity I would annually select anyway.

    Bookmark   January 2, 2014 at 8:47PM
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We like to tithe to our church and we do it thru our required distribution from our IRA. We pay no tax on it because it goes directly to our church. I agree that it is a win/win!

    Bookmark   January 2, 2014 at 9:18PM
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lov_mkitchenIOWA zone 6b

Excellent! I am going to print this off so I can do it.

    Bookmark   January 2, 2014 at 10:07PM
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Hi lov_m kitchen,

Note the proviso at the beginning of my post, that this relates to the situation in Ontario, Canada at the end of 2013 ... your situation may be substantially different.

Check with someone who knows the investment and tax game in your area before you put too much trust in my story.

I expect that you'll find that there are some substantial tax savings when one makes charitable contributions in your area, as well.

ole joyful

    Bookmark   January 9, 2014 at 7:14PM
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lov_mkitchenIOWA zone 6b

Yes, and everything changes all the time. But I can check to see how it applies to me. It's such a great idea. Thank you.

    Bookmark   January 9, 2014 at 8:04PM
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The topic here was somewhat different, but when Canadian taxpayers pay over 200.00 per year to charitable causes, the rate of tax on the first $200.00 of contribution is at the regular rate for tax credits.

But for each dollar contributed over that first $200.00, the tax credit allowed is at the highest tax rate, regardless of the actual incremental rate that the taxpayer would be paying at his/her level of income.

ole joyful

    Bookmark   January 11, 2014 at 3:14PM
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That stock to which I referred earlier ... was paying $3.62 a while ago, then went to $3.84 ... and now is paying me $4.00 per year ... and the stock price reached $100.00 per share a few weeks ago.

So ... looks as though the wait to make the $4.17 annually (at low tax rate) which is the amount that I paid per share 47 years ago may not be too much longer ... so I may not have to be sure to stay alive for a much longer period in order to make it.

Wish me luck.

ole joyfuelled

    Bookmark   August 7, 2014 at 5:40PM
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