Render Unto Caesar
Matthew, Mark, and Luke all report that Jesus said, “Render unto Caesar what is Caesar’s, and unto God what is God’s.” Notice that the guidance does not say give generously to Caesar, nor does it say give any more than Caesar requires or mandates. If we interpret Caesar to be the US government, or more specifically the IRS, these verses seem to say pay what the law requires, but not a nickel more, because that belongs to God, not Caesar. If the tax law is written so that there are options that allow us to lawfully pay less, shouldn’t we, as God’s stewards, do that? This is the first in a series of brief articles that will each discuss a way to take advantage of the tax laws to minimize what we render unto Uncle Sam, so that more can be given to God.
With the current tax laws in effect for many of us, itemized deductions for things like our church offerings and tithes may no longer be worth itemizing. That’s because the standard deduction for a couple is now (for 2022) nearly $26,000. I’ve heard some complaints about not being able to write off charitable giving, but there are still some ways to reduce what we render unto ‘Caesar’ when we give to God. Today we will talk giving appreciated assets directly to the church instead of writing a check or giving electronically.
Capital gains tax avoidance can apply to anyone with a regular, taxable, brokerage account. When we have stocks, or mutual funds that have grown in value, when that asset is sold, the increase in value is the capital gain. However, if we donate some or all of that stock or mutual fund to the church before it is sold instead of writing a check to the church, the church gets the full value of the stock or mutual fund and we pay zero tax on the capital gain. The church should not care if our pledge is paid by a stock transfer. So, if the church doesn’t have an issue, and Caesar (the government) allows it, doesn’t it seem like those avoided capital gains taxes, or at least a portion of them, should go to God?
How does it work? Let’s use an example. We have a married couple filing jointly, whose capital gains tax rate is 15%. Capital gains tax rates apply to assets held for more than a year. (For short term gains, assets held one year or less, your regular income rate applies.) Our married couple has 100 shares of appreciated stock XYZ that was bought many years ago at $100/share and is now worth $1100/share. If they sell the stock, they will make $1000/share in capital gains. At their 15% capital gains tax rate, for every share of XYZ they sell or cash out at $1100, they will pay approximately $150 in capital gains tax.
Their pledge to their church is $11,000. Because they need a new roof this year, instead of writing the usual check from savings, they decide to cash out some of their long-held stock to fulfill their pledge. They determine that if they sell 10 shares of XYZ, they will get $11,000 minus a small brokerage fee to sell the stock, and write a check to the church. They will then report on their tax forms capital gains of just about $10,000 (10 X $1000 gain on each share). This capital gain will be taxed at the 15% rate which means they will owe about $1500 in taxes. Conversely, had they opted to transfer the 10 shares of XYZ directly to the church, the church would have credited them with a $11,000 gift. (10 x $1100 per share). The church would then have sold the stock (with zero brokerage fee if they go through the United Methodist Foundation) and the church would have received $11,000. The church doesn’t have to pay capital gains.
End result? The couple has no capital gains so they save the $1500 in taxes. They choose to apply 2/3 of that savings to the new roof and give the other third to their favorite mission at their church. The church gets their full $11,000 pledge plus that extra 1/3 or $500 they shared from what they saved in taxes.
If your church does not have a brokerage account and therefore cannot accept stock donations, the Foundation can assist with stock transfers. We do it with no fee or commission and send the full value to the church. We offer to meet with a team or even hold an open session with interested church members and present how these options to give more tax efficiently can happen. With more and more people owning stocks and mutual funds, as good stewards, we want to provide them a way to legally give more to God and less to Caesar.
(This article talks about certain aspects of the tax code but it is not official tax advice. For specific tax questions or issues you should always consult a qualified tax professional.)
Author: Brad Duty