How to tithe an investment return

[German_LDS]

Hi,

I've got a question about how to tithe or rather how to come up with the best way to tithe.

Just imagine the following:

You have a steady income and you tithe. You invest some of the post-tithe money into some kind of investment - be it stock, bonds, real estate whatever.

You tithe regularly from the dividends, interests and leases you earn on these investments.

Now the easier part:

Many, many years later you sell the investment. You make some profit because it sells at a higher price than what you initially had payed for it.

You probably would tithe from the profit you made. That's OK. Another way would be to give 10 % of the stock or bonds you buy to church. That would cover all your tithe obligations.

Now the tricky part:

What if you invested in some kind of precious metals like gold? You bought that gold years ago with post-tithe money. Since gold is money (the oldest form of money actually) you just changed your money from one currency to another.

Because of the inflation gold increased in value to your base currency (the U.S. dollar - or in my case - the Euro). But that's only because your base currency lost value because of inflation. Since gold cannot be increased (not significantly at least) it's not the gold increasing in value but the Dollar or the Euro losing their value.

So how do you handle this situation? How do you calculate the correct tithe?

Another problem is that in many cases you won't be able to calculate the exact amount of value your base currency lost compared to the gold. So you you might not be able to tell, how much you "gained" if you will eventually sell you gold and get Dollars, Euros or some kind of new currency for it. How do you handle this?

You could argue to just give 10 % of the gold each time you buy it to the church. That would mean to give 10 % of the market price each time you buy (since you cannot really transfer gold as a physical good to the church). But since gold is just another kind of currency it wouldn't make sense because you already tithed your income.

Any ideas how to handle such a situation?

Thanks!

[skippy740]

Tithe in such a way that you feel at peace about it with the Lord and you can say to your Bishop that you are a full tithe payor.

[Vort]

I would subtract the current monetary value of the gold from its value at the time I bought it and tithe the difference. We do not live on a gold standard, either in the US or in Europe, so I would not worry about pedantic issues of monetary equivalence versus value of gold.

[applepansy]

I agree with both Dravin and Vort.

[MarginOfError]

I agree with both Dravin and Vort.

And Dravin hasn't even weighed in yet!

Do what ever makes you feel good about your decision. That's really the only math that matters in this situation.

[Vort]

I agree with both Dravin and Vort.

Has anyone actually ever seen skippy and Dravin together in a room at the same time?

[pam]

Has anyone actually ever seen skippy and Dravin together in a room at the same time?

Do you mean physically IRL together? Or is this another one of your sock puppet speculations? haha

[skippy740]

Has anyone actually ever seen skippy and Dravin together in a room at the same time?

It was a padded room with lights... and I vaguely remember some kind of really tight vest and I couldn't move my arms.

Some kind of repressed memory I suppose...

[Guest]

You could argue...

You're not supposed to have to argue over what comprises a tithe. Tithe - 10% of your gain. You get to decide what is your gain. Nobody needs to argue over it. The bishop will not ask for your investment portfolio or have a chat with your accountant to determine your worthiness.

Your gain is what your conscience tells you it is - with an appeal to the Holy Spirit for guidance. If your conscience is conflicted on the matter, then bring the matter up to your bishop and let him help you clear it.

[German_LDS]

First of all:

Thank you all for your replies.

Most of you say to follow one's conscious when making the decision on how to tithe. That's of course absolutely right.

So please don't get me wrong. I don't want anybody to tell me how to tithe in such a situation. I just want your advice and your opinion. Of course everybody will have to decide for his or her own about such a matter. That's the reasons why I'd like to know, what you would do.

I would subtract the current monetary value of the gold from its value at the time I bought it and tithe the difference.

Very good idea. But let me tell you, why this could be very difficult here in Germany. In Germany any gain from a gold investment is tax free after one year. So if you keep your gold or any other precious metal (or almost all other physical goods) for more than one year after you bought it, the increase in its value compared to the base currency (i.e. Euro in Germany) is tax free.

That's the reason why its often not easy to find out what somebody gained from selling some of his gold. Usually your bank will keep track when you buy and sell stock or bonds. They'll calculate your gains and losses based on the (in Germany) FIFO method - first in first out. If buy and store gold at any kind of financial institution nobody keeps track because it's not necessary for gold held longer than one year.

If you buy and/or sell regularly it's almost impossible to keep track for yourself. At least I'm not aware of any feasible way to do it. If you have advice for me about that please tell me.

So actually I would prefer to tithe on the gains of the investment compared to the base currency. But I'm not really sure how to do it an a not to difficult way.

[Vort]

[quote name=German_LDS;692231But let me tell you' date=' why this could be very difficult here in Germany. In Germany any gain from a gold investment is tax free after one year. So if you keep your gold or any other precious metal (or almost all other physical goods) for more than one year after you bought it, the increase in its value compared to the base currency (i.e. Euro in Germany) is tax free.

That's the reason why its often not easy to find out what somebody gained from selling some of his gold. Usually your bank will keep track when you buy and sell stock or bonds. They'll calculate your gains and losses based on the (in Germany) FIFO method - first in first out. If buy and store gold at any kind of financial institution nobody keeps track because it's not necessary for gold held longer than one year.

If you buy and/or sell regularly it's almost impossible to keep track for yourself. At least I'm not aware of any feasible way to do it. If you have advice for me about that please tell me.

Sorry to be dense, but I am not understanding the difficulty. Whether or not the income is taxed seems irrelevant to me. You know how much you paid for the gold originally. You know how much money you get for it when you sell it today. Sell the gold, calculate the increase in value, and tithe that.

I suspect I'm missing something in what you're saying, but not sure what. Is it that you have not kept track of your investments and the banks aren't keeping that information for you, so you literally have no idea how much money you have made and have no records? If that is the case, I might do something like the following: Sell my gold, calculate the value of that gold at the time I first bought it in 1987 or whenever based on historical records, then tithe the difference.

[German_LDS]

OK, let me be more clearly:

If you buy anything (it doesn't matter what it is) on a regular basis, it becomes very difficult to actually know, what your gains are.

Let assume you buy something on a monthly basis and invest $100. Every month the price of that good varies. So every month you'll get more or less of that good. You continue do boy that something every month for 40 years. After 40 years you begin to sell small quantities of your investment. How could you possibly calculate what your gain is? You sell parts of your investment that you once bought at different times for different prices. So what is you gain?

[Guest]

If you buy and/or sell regularly it's almost impossible to keep track for yourself. At least I'm not aware of any feasible way to do it. If you have advice for me about that please tell me.

So actually I would prefer to tithe on the gains of the investment compared to the base currency. But I'm not really sure how to do it an a not to difficult way.

Okay, this is how we do it with our investments:

We only tithe when we take out the investment. That is - when we cash it out. Otherwise, it stays in the investment account gaining and losing, buying and selling and not tithed.

If we cash out the entire investment, we tithe on the difference on the initial investment and the cash out value before taxes (if any). But, if we cash out any portion of the investment without selling stocks (like for CODs), we start paying 10% on whatever money we cashed out after it goes beyond our initial investment. Okay - we really don't take good accounting of what we have tithed on what, so we usually just end up paying 10% on any portion we cash out regardless. If we actually sell portions of stock to cash out, then we take the difference between the intial stock price of each share we sold and the price of the stock when we cashed it out and tithe that.

We follow the same concept when we use margin accounts to short sell. Since we put it 0 cash in the account, we pay 10% for anything we cash out.

If we close accounts on a loss, we don't worry about marking it and applying the loss to other accounts. It's just a loss, 0 tithe, and it's forgotten.

Currency valuation is swept into the entire determination of the value of the stock now versus then. So, for example, if I buy gold for $1,600 now and cash out the investment 1 year from now and get $1,700 for it, then I pay tithes on $100. If I cash it out in Euros, then the exchange rate of Euro versus Dollar at the time I sell it is the $ value and would be used to determine my tithe.

We don't really sweat it out. We only mark intital investment and selling price in a cash out event. If we sell to trade, we don't bother with it.

Edited August 20, 2012 by anatess

[German_LDS]

But, if we cash out any portion of the investment without selling stocks (like for CODs), we start paying 10% on whatever money we cashed out after it goes beyond our initial investment.

Sure, you know the price of the sold stocks, bonds and anything. You can calculate your gains.

If you have many stocks or whatever else in your portfolio which have been bought at different times for different prices and now sell only a few percent of them, you won't be able to tell the gains because you don't know the initial price back when you bought it.

Let's make an example. You buy stocks from one company repeatedly for a year:

Jan 10 stocks at $5

Feb 117 stocks at $4.87

Mar 15 stocks at $5.09

Apr 83 stocks at $4.21

May 10 stocks at $4.58

Jun 15 stocks at $4.65

Jul 125 stocks at $5.01

Aug 80 stocks at $5.02

Sep 110 stocks at $5.10

Oct 10 stocks at $5.14

Nov 5 stocks at $5.31

Dec 84 stocks at $5.08

In February next year you sell 199 stocks at $5.51. What is your gain? And this tiny example is relatively easy. Just imagine having a real portfolio with a lot of buying and selling going on.

[Vort]

OK, let me be more clearly:

If you buy anything (it doesn't matter what it is) on a regular basis, it becomes very difficult to actually know, what your gains are.

Let assume you buy something on a monthly basis and invest $100. Every month the price of that good varies. So every month you'll get more or less of that good. You continue do boy that something every month for 40 years. After 40 years you begin to sell small quantities of your investment. How could you possibly calculate what your gain is? You sell parts of your investment that you once bought at different times for different prices. So what is you gain?

40 years of monthly investments is only 480 total transactions. That isn't so many.

If I'm buying and selling regularly, I track which stocks or gold pieces I am buying and selling, so that I know the basis for any particular transaction. But even if I haven't kept track of specifically which pieces I have bought and sold, it's still easy to see that all 480 purchases together constitute my total buying, and all 480 sales together constitute my total selling.

If I have, as of today, bought a total of 10,000 ounces of gold and I have sold 5,000 ounces, then I will probably take as by basis the first 5,000 ounces of gold that I bought in that time. I will subtract the amount I paid for those first 5,000 ounces from the amount I made selling 5,000 ounces and tithe on that difference. Then I will keep track of which gold I have already sold (and so no longer have), and in future transactions I will subtract the value of my oldest gold that I haven't already sold from whatever gold selling I do.

[Vort]

Sure, you know the price of the sold stocks, bonds and anything. You can calculate your gains.

If you have many stocks or whatever else in your portfolio which have been bought at different times for different prices and now sell only a few percent of them, you won't be able to tell the gains because you don't know the initial price back when you bought it.

Let's make an example. You buy stocks from one company repeatedly for a year:

Jan 10 stocks at $5

Feb 117 stocks at $4.87

Mar 15 stocks at $5.09

Apr 83 stocks at $4.21

May 10 stocks at $4.58

Jun 15 stocks at $4.65

Jul 125 stocks at $5.01

Aug 80 stocks at $5.02

Sep 110 stocks at $5.10

Oct 10 stocks at $5.14

Nov 5 stocks at $5.31

Dec 84 stocks at $5.08

In February next year you sell 199 stocks at $5.51. What is your gain? And this tiny example is relatively easy. Just imagine having a real portfolio with a lot of buying and selling going on.

I sold the first 199 shares that I bought:

• 10 stocks at $5
• 117 stock at $4.87
• 15 stocks at $5.09

for a total of 142 stocks, for which I paid a total of 10*($5)+117*($4.87)+15*($5.09) = $696.14. This leaves 57 more stocks, for which I paid $4.21 (or $231.97 total), for a grand total of $936.11 for 199 stocks. I sold them for $5.51, yielding me 199*($5.51) = $1096.49 from the sale. This is a profit of $1096.49 - $936.11 = $160.38 profit.

So I pay $16.04 in tithing.

From this point on, I still have 83-57 = 26 more stocks at $4.21 each, plus my later stock purchases. Next time I sell, I will start here to calculate my profits.

This kind of thing is extremely common in any stock purchase (for example). It's done all the time. Any decent finance program will track this kind of thing for you.

[German_LDS]

Yeah. that's FIFO

But what you do in this case is to tithe on losses. The amount of gold you have won't increase or decrease in value very much. But what decrease is the value of the Dollar. You get more dollars for the same amount of gold because the dollars has lost some value. The buying power is supposedly the same (measured in gold). You just need more of dollar bills to pay for the same goods and services.

So what you do - and you are totally free to do it - is to tithe n losses. But we are to tithe our increase. Increase is what you now have more compared to what you had before. You bow have more dollar bills but they will buy about the same. Is this increase?

[Vort]

Yeah. that's FIFO

But what you do in this case is to tithe on losses. The amount of gold you have won't increase or decrease in value very much. But what decrease is the value of the Dollar. You get more dollars for the same amount of gold because the dollars has lost some value. The buying power is supposedly the same (measured in gold). You just need more of dollar bills to pay for the same goods and services.

So what you do - and you are totally free to do it - is to tithe n losses. But we are to tithe our increase. Increase is what you now have more compared to what you had before. You bow have more dollar bills but they will buy about the same. Is this increase?

Very fair, legitimate question. I have no good answer, except that, personally, I would far prefer to OVERpay my tithing than to UNDERpay it. This is not even for any quasi-superstitious "fire insurance" type of reason; rather, I made a covenant that everything I own is consecrated for the building up of God's kingdom (aka the Church of Jesus Christ of Latter-day Saints) and my tithing is one of the most important and visible parts of that consecration. I want to be the type of person that does at least my part, and preferably more.

[German_LDS]

I want to be the type of person that does at least my part, and preferably more.

Very good answer. Thank you!

[Guest]

Sure, you know the price of the sold stocks, bonds and anything. You can calculate your gains.

If you have many stocks or whatever else in your portfolio which have been bought at different times for different prices and now sell only a few percent of them, you won't be able to tell the gains because you don't know the initial price back when you bought it.

Let's make an example. You buy stocks from one company repeatedly for a year:

Jan 10 stocks at $5

Feb 117 stocks at $4.87

Mar 15 stocks at $5.09

Apr 83 stocks at $4.21

May 10 stocks at $4.58

Jun 15 stocks at $4.65

Jul 125 stocks at $5.01

Aug 80 stocks at $5.02

Sep 110 stocks at $5.10

Oct 10 stocks at $5.14

Nov 5 stocks at $5.31

Dec 84 stocks at $5.08

In February next year you sell 199 stocks at $5.51. What is your gain? And this tiny example is relatively easy. Just imagine having a real portfolio with a lot of buying and selling going on.

German, this is what I meant when I said - we only mark cash investment and cash out. And we only go by accounts. Any stock that goes in that one account is put into one pool. We have several accounts so we have several pools. But for each pool - we know exactly how much cash we put into the account - regardless of when we put the cash in. Margin accounts get 0 cash in. So, in your example, by the end of December, we have (sorry, too lazy to add all the numbers here) X dollars total that we've put into the account. Now, if we sell 199 stocks, it doesn't matter - we don't pay tithes. We only pay tithes when we CASH OUT the sell - that is withdraw cash money from the account. If we sell it to trade it just stays there untithed. Now, if we close the account, it is easy to figure out tithe - we just determine the difference between the cash amount that we got at the time of closing and subtract our cash investments into the account and tithe that. If we close out on a loss, we tithe $0 and forget about it.

But, the confusion happens when we only cash out partially. That is - we withdraw certain amounts without closing the account. It's easy if you only have one stock in there (like just a gold account and not a full portfolio). We have a few of these because we did DRIPs at one point. Because you know your initial stock price (FIFO) and your selling stock price it's easy to get gains. But, if you're in a mutual fund type thing or if you have tons of stocks in a single account, unless you have a manager, it can get complicated to have to figure out which stock you sold for what. So, if we partially cash out we pay 10% tithe on the cash out once it goes beyond our cash investment. Now, like I said before - we are not good at writing down what account has had part of cash investments taken out untithed - so we always just end up paying 10% tithe for every cash out regardless of whether we've taken out less than initial investment or not. And, when the entire account gets closed, we do the difference on cash out and initial investment and tithe on that regardless of whether we've taken partial cash outs on it before.

Yeah, like Vort said - penny pinching tithing is more trouble than it is worth. Might as well just position yourself for 10% or more rather than exactly 10%.

But, this just applies to my own personal finances. This does not apply to anybody else besides me. So, please don't think that because I do it this way that you're doing it wrong if you're doing it differently.

Edited August 20, 2012 by anatess

[herculesmovers]

You only pay tithing on profit of your initial investment. Let's say you borrow 10K from a lender, so your initial investment is 10K:

 

Case 1: If you sold your stocks when you stock value is above your initial capital then you will have a profit Therefore you WILL pay tithing. Let' say you sold all your stocks with a value of 13K total, then your profit is 3K. Your tithing is 300

 

Case 2: If you sold your stock at loss, then you did not make a profit therefore you WILL NOT pay tithing. Let's be clear losses include profit and losses combine from many stocks. If you gain 20% in stock A, and lose 50% in stock B (assuming all amounts are equal), is still a loss. The net value is what matters. And if that net is under your initial investment, you don't pay tithing.

 

Case 3: if you lose one year below your initial investment and the next year grow some but not enough from your initial investment, then you still have a loss from you initial capital therefore there is not profit from that initial investment, therefore you don't pay tithing. For example, my start up capital was 10K, next year I loss 4K, then next following year gained 3K, still i have an overall loss of 1K, so you don't have to pay tithing. 

 

Case 4: let's say you gained 3K one year, you paid your tithing of those 3K, then your initial investment would be 13K (this is your new mark or initial investment because you already pay tithing). Everything start from 13K mark..if you make more than 13K pay tithing or if you loss less than 13K don't pay tithing. 

 

This loop is eternal. Pay when you exceed, don't pay if you didn't exceed your initial investment.  Especially if you're day trader, you don't know if you have gained or loss after you sell (realized). 

[yjacket]

German_LDS,

 

I sympathize with you; unfortunately (or fortunately) most US citizens have no idea what it is really like to have their currency completed destroyed by inflation.  And in very long term investments (10+ years), inflation becomes a very big concern.

 

Let's take a very practical example. In the 1950s gas in the US was about 25c/ gallon.  Gas today is roughly 3/gallon.  A 1950s 25 cent coin would be "worth" 3/gallon

roughly http://www.silvercoinstoday.com/silver-coin-price-guides/us-silver-coin-values/

 

Did gas prices really go up? Or did the government just print more money? If simply saved a 25c coin from the 1950s I could sell it today for 3.05.  Paying tithing on 3.05-.25 =$2.80 or 28c is ridiculous.  I didn't invest it, I just kept it. I can't say that just simply "holding something" is an increase.

 

I think for physical things like oz of gold/silver it's much easier to figure out.  If I hold 1000oz of silver, my currency meltdowns and in 20 years I have 1000oz of silver, personally I won't be paying tithing on what I've had the entire time.

 

Tithing is one-tenth of income, interest or increase (https://www.lds.org/manual/doctrine-and-covenants-student-manual/section-110-121/section-119-the-law-of-tithing?lang=eng).

 

If I simply help physical bars for 30 years, it's not income, it's not interest and it's certainly not an increase.

 

Now long-term investments in non-physical things gets a little tricky.  The same thing that happens with gold/silver (i.e. inflation) will happen with stocks, houses, bonds . . . everything.  For non-physical things, I'd probably consider just using an inflation adjustment calculator.

 

If one is involved in buying/selling silver/gold, etc. with the intent to make a profit (i.e. basically playing the markets), then the gain of those transactions IMO would certainly need to be tithed. 

 

Short-term investments are pretty easy, since inflation (generally) is not a factor in things less than a year.  Long-term 30+ year investments are tricky, b/c inflation can really do some damage, it makes "gains" appear good, when in reality one can very easily lose value on an investment even though the price has gone up.

Edited June 1, 2015 by yjacket

[pam]

Please keep in mind this thread is almost 3 years old and the OP has not visited the site in over 2 years.

[Francisco D'Anconia]

I think I will tithe on any increase, but not on the principle (assuming that I already tithed on the principle before investing it).  It is best with a couple of examples:

Example 1: Investing in Stocks

Earn $100,000 in salary.  Pay tithing of $10,000 on this money in the year I earn it (leftover is $90,000 that I transfer to a specific investment stock account as cash).  I can withdraw up to $90,000 tithing free.  After the original $90,000 is returned, I tithe on the rest as it is withdrawn from the specific investment account.  Funds can essentially compound in the investment account "tithing free" until I take them out as return of capital (not tithed a second time) or return on capital (tithed).  When I close out the account, I first make sure that I have taken out the original $90,000 of investment and then pay tithing on the rest.

Example 2: Investing in Businesses

I would treat stocks (a part of a business) and private businesses the same.  The only difference is liquidity.  Earn $100,000 in salary.  Pay tithing of $10,000 on this money in the year I earn it (leftover is $90,000 that I buy a mechanics shop with).  I can withdraw up to $90,000 tithing free in salary, dividends and less tangible benefits from the business.  After the equivalent value of $90,000 is returned, I tithe on the rest as it is withdrawn from the specific business.  The value of the business could go up or down, the business could re-invest back into itself some of its profits without paying tithing.  If the business is sold, I first make sure that I take out the original $90,000 tithing free and then tithe on the rest at that time.  I would not have someone quote me on the value of my private business in the middle of operations and pay tithing (unless I felt a specific prompting to do so).

Example 3: Investing in Currencies

For investing in other currencies or gold, I would treat them like another investment account.  However, if I am spending that money directly without physically switching over to my home currency, I would first pay tithing on that amount as if I had changed it to my home currency before making the purchase.  I would not (again, unless prompted to), pay tithing on the current market price.

[prisonchaplain]

Subversive question:  Is tithing on investment returns an obligation? Like LDS, my church teaches that tithing is appropriate, and most of our churches expect those who become members to tithe. However, my understanding is that tithing is done on earned income, not investments. The reason is that investments are made with money that has already been tithed upon. In addition, we'd look askance at someone who deducted investment losses from their overall tithing, so why would we expect them to tithe on their gains? On the other hand, doing so is a good thing. I'd just categorize it as offering, rather than tithe. Am I thinking wrong here?