Every cloud has a silver lining. There are two sides to every coin. The knife cuts both ways. The dire state of the economy has given rise to some of the best church stewardship opportunities seen in decades.

The Internal Revenue Service uses the “Section 7520 Rate” — commonly called the AFR — to calculate the income tax deduction you receive for a planned giving contribution to your church.

In March 2007, the AFR was 5.8%. It dropped to 3.6% in March 2008. In February 2009, it reached the lowest rate since it first went into effect in 1989: 2.0%.

But what, you ask, does this have to do with church stewardship? A great deal! Here’s an example.

If you are 75 years of age, and you have a $50,000 CD which pays 4%, you earn interest of $2000 per year. But that interest is taxable. Let’s assume that you are in the 15% tax bracket. Your tax will be $300, leaving you net earnings of $1,700. This is what you can take to the store to buy groceries.

You need more income. You have applied church stewardship principles to managing your money for most of your life. You would not be opposed to increasing your income and helping your church at the same time. In meeting with your financial planner, she suggests you look at a charitable gift annuity (CGA).

Church stewardship planning with a charitable gift annuity is a very simple, but effective way to plan. Here are the benefits of moving the $50,000 from a CD to a CGA:

1. Your income will increase from $2,000 a year to $3,150.

2. 78.7% of the $3,150 is not subject to tax. Bottom line: More money for groceries.

3. When you die, your church receives the $50,000. You accomplish the goal of leaving a significant church stewardship gift.

Let’s change the assumptions a little. Let’s say you were age 75 in March of 2000 and set up the same CGA when the Sec. 7520 rate was 8.0%. The amount excluded from tax would have been only 53.7%. Putting this church stewardship plan if effect today means you pay less income tax and have more money for to spend.

The take-a-way from this is that if you are interested in increasing your income, reducing your taxes, preserving your estate from undo taxation while simultaneously helping your church, it would be prudent to examine the various church stewardship techniques which may apply to your situation.

If you represent a church and are interested in raising more money for your ministries, it would be wise to communicate and publicize the church stewardship charitable plans that currently have high value due to the low AFR.

This is only one of several examples of how a church stewardship program and an individual member can benefit from a bad economy.

If you are thinking about making charitable contributions to your church, you need to be aware of some factors affecting deductible donations. Some changes in the laws were made as a result of stipulations of the Pension Protection Act of 2006. These include:

– Charities must be IRS approved.

– Restrictions on tax deductions for different types of charitable contributions.

– Regulations regarding documentation of value for different types and values of items donated.

– Penalties for over-valuing a deductible donation to charity.

– How to deliver the gift and when it is deemed a completed gift.

The purpose of this article is to outline the current regulations governing four common categories of charitable contributions commonly considered deductible donations to churches.

Cash

The clearest guidelines apply to cash gifts. Any amount you give can be used to claim a deduction for a charitable contribution. You are allowed to take a deduction for amounts given to churches because churches and other religious organizations qualify as public charities. Tax law limits the amount you can deduct, however, to 50% of your Adjusted Gross Income (AGI).

Stock, Bonds, Real Estate and Other Real Property

If you own the asset for more than a year, you can take a donation deduction for a charitable contribution at its fair market value. For real estate, however, you will be required to base your deduction on a cost basis under certain circumstances.

If you have owned the asset for less than a year, its sale would produce ordinary income rather than a capital gain. The deduction for which you are eligible would be limited to the cost basis. Other types of contributions must also be calculated on a cost basis, such as a work of art donated by the artist or inventory donated by a manufacturer or merchant.

As an example of a gift of inventory, my church has an annual shoe drive to benefit children. If the owner of a shoe store donated 50 pairs of shoes, the charitable deduction would be limited to the cost basis, not the retail price.

Series E and EE Bonds

A charitable contribution of bonds to your church is a bit more complicated. During your lifetime, you cannot transfer ownership of Series E or Series EE Bonds to a charitable organization. The bond must be cashed (by you). You would be required to pay tax on any gain because interest earned is deferred, like an annuity. Then the remainder can be contributed to the church or charity.

Planes, Trains and Automobiles

There are new rules, which became effective January 1, 2005 in order to qualify for the car donation deduction.

If the charity doesn’t have a use for the vehicle donated and sells it, the charitable deduction is whatever they get for it or the fair market value, if lower. However, if the charity fixes it up, uses it or plans to give the vehicle to a needy person, the charitable tax deduction is the fair market value.

Charitable Contributions Caution

Before you make any gift, you should consult with a qualified tax professional. Furthermore, some gifts may not be acceptable to the church or have to pass through a review process (life insurance is a good example). Therefore, in these situations bring the church into the charitable donation process early on as well.