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Glossary of Terms beginning with O
- Opportunity Cost
Opportunity cost is a calculation that captures both the price paid for an activity or object, and the value alternative uses of the time or money involved. The greatest obstacle to any investment or philanthropic decision is letting go of other alternative, including doing nothing. When making a philanthropic gift, a donor is foregoing other (potentially profitable or lifestyle enhancing) uses of the funds. Understanding opportunity cost provides useful insight into what the donor values, and offers a concrete way to discuss the satisfaction of making the specific gift, versus other uses of the money.
Example: you are holding a stock that pays a dividend of 1.5% annually. In holding that stock you are giving up a 5% return in another investment in a risk free bond. In this situation, your opportunity cost is 3.5% (5% - 1.5% = 3.5%)
- Ordinary Income
Ordinary income comprises a broad range of receipts including interest, dividends, rents, and realized short-term capital gains. This is the first type of income to be paid out of a charitable remainder trust according to the four-tier accounting method.
- Ordinary Income Property
Property that produces income taxed at the owner’s regular income tax rate.
- Outright Gift