| BUSINESSWEEK ONLINE : NOVEMBER 15, 1999 ISSUE | ||||||||
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| BUSINESSWEEK INVESTOR -- THE BARKER PORTFOLIO
Lending a Helping Hand--with Stocks You may not be able to give $150 million to Stanford University, as Silicon Graphics-Netscape-Healtheon-myCFO founder James Clark just did. But I bet you can be much more generous with your charitable contributions this year than ever before. No, I don't have X-ray vision into your portfolio. Yes, I am being presumptuous. Yet I hope you'll excuse me because I'm butting in with reason. Chances are, the economy has pushed up your income. Chances are, too, that the stock market has made you richer. Both are good reasons to give more to charity. But here's the one I like best: You can afford to give more because it's unlikely that you've made your past donations in the smartest, most effective way--that is, by donating stock, bonds, or mutual fund shares instead of cash. This way of giving isn't new. Yet in spite of some compelling tax savings (table, page 294), few Americans choose to donate securities--just 7%, a recent survey taken for Fidelity Investments found. Ed Hermes, a retired Procter & Gamble executive, learned that the hard way last year. He and his wife, Janet, were helping to organize a fund-raising dinner in Cincinnati for A Special Wish Foundation, an Ohio-based nonprofit that aims to grant the wishes of terminally ill kids. BLACK-TIE BROCHURE. Hoping to make it easier for donors to shell out $1,500 for a table, Hermes set up an account at PaineWebber to take donations of stock or fund shares in lieu of cash. He and his wife donated some of their P&G shares. Another fellow offered Cisco Systems stock. Otherwise, though, the plan flopped. ''People who I assumed were pretty sharp financially just didn't get it,'' Hermes told me. The couple isn't giving up. Before the next black-tie fundraiser in March, they plan on having a brochure to explain, step-by-step, the mechanics of donating stock in lieu of cash. At bottom, though, it's this simple: ''Any opportunity I get to deprive the government of a little money,'' Ed says, ''I take advantage of.'' If that sounds good to you, here's a quick description of how you can take advantage, too. Because donating stock involves two of the world's surest sleep potions--taxes and stock transfers--it has been an underexploited opportunity. Happily, however, it's getting easier. I'll also point out where you can go to figure how much in charitable donations you can afford and, just as important, how to save time by cutting down on the paperwork. Uncle Sam makes donating stock that's gone up or other ''appreciated assets'' worth your while by offering two tax breaks. First, you get to deduct from your current income the full market value of your shares, up to 30% (or 50%, if held a year or less) of your adjusted gross income. If you paid $50 for Microsoft, but it's now worth $90, you get to deduct $90 from current income for each share you give. Second, you get to erase your long-term capital-gains tax liability, usually a 20% clip, on shares you donate. Writing a check on your money-market account is obviously simpler, but it's also costlier. Here's an example of how a stock donation can leave you better off: Suppose you want to give your alma mater $1,000 in cash. If you're in, say, the 31% income tax bracket (and not counting any break on state taxes), your cost after tax breaks comes to $690. But what if you were instead to peel off 10 shares of the Vanguard 500 Index Fund you bought back in 1995 at $43 a share? They're now worth about $120 each. On 10 shares, that's a capital gain of $770--and a tax liability of $154. Give them instead of cash, and your alma mater is up $1,200. But after breaks on your income tax ($372) and capital gains liability ($154), you're just $674 poorer--less than if you had written a check. NEW INTERMEDIARIES. Now promoted by big, polished fund-raisers, such as symphonies, hospitals, and universities, stock donations are catching on. But there are reasons why, despite widespread stock and mutual fund ownership, you may hesitate at this bit of financial exotica. Small charities, such as a church, may not be set to handle your stock donation. And who can bear the multiple stock-transfer forms if you want to give to 10 or 12 charities? The good news is that new intermediary services have come along to ease the way, including one in September from discount broker Charles Schwab (800 746-6216) and two older ones spawned by the two top fund companies, Fidelity Investments (800 682-4438) and Vanguard Group (888 383-4483). Each now offers something called ''donor-advised funds.'' They work this way: You donate stock or other securities to the fund. Once you do, you can't get the money back. But you do qualify immediately for both the income-tax and capital-gains breaks (while also removing those assets from your estate and possible taxation there). Next, you choose how your account will be invested from a basic menu of three or four portfolios. Then, whenever you want, you direct the fund to send checks to your favorite charities in amounts large or small. Fidelity's Charitable Gift Fund, for example, has made donations to 50,000 charities, some as small as $250. The funds gather the tax receipts for you on a single statement. Fidelity and Schwab require initial donations of $10,000 and Vanguard $25,000. But there's no deadline for directing donations from your account. So if you have fat gains on, say, employee-stock options, or some other windfall threatens you with a tall tax bill, you can donate shares to one of these funds and tap it for future gifts to charity over many years. There are fees: For accounts under $500,000, Fidelity's annual fee ranges from 1.45% to 1.7%, Schwab's 1.07% to 1.13%, and Vanguard's 0.65% to 0.75%. NEW-STYLE TITHING. Still not ready to donate $150 million like Jim Clark? Neither am I. But if you wonder how much you can afford to give, go to www.newtithing.org. That's a Web site set up by a 71-year-old financier named Claude Rosenberg Jr. Since selling RCM Capital Management, a $60 billion San Francisco firm, to Dresdner Bank in 1996, Rosenberg has spent most of his time spreading the message of his 1994 book, Wealthy and Wise: How You and America Can Get the Most Out of Your Giving (Little Brown & Co., $24.95). Trust me, it's a sludgy read. But it persuasively suggests that Americans, especially those with lots of investment assets, could keep their current standard of living while giving more to charity--$250 billion a year more, he told me. ''We've had this great prosperity, and societal problems still exist,'' he says. ''While we have the financial wherewithal, we ought to use it.'' No argument here. Questions? Comments? E-mail barkerportfolio@businessweek.com or fax (321) 728-1711 By ROBERT BARKER _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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