Maximize your Charitable Gift (''Tis the Season'')
As we near the end of 2013, we will likely spend some time assessing the past twelve months and then turn our attention to preparing tax returns. The fact that it has been a good year for the markets is undisputable. The equity returns of 2013 have left many of our clients with significant unrealized capital gains in their portfolios. To most investors, these gains represent a future tax obligation. If considered differently, these gains can become a valuable tool for tax advantaged gifting.
Careful planning around how to make a charitable gift to a qualifying organization can positively impact your final tax bill for 2013. For example, if you are in the highest marginal tax bracket and plan to give a cash gift of $25,000, you can save up to $9,900 in taxes, which is obviously quite good. However, if you were to make the same charitable contribution using highly appreciated securities from your taxable investment portfolio, there is the potential of an additional $2,975 in capital gains tax savings*. By donating $25,000 in stocks or mutual funds with a cost basis of $12,500 (a 100% capital gain) you will save a total of $12,875 in taxes. The difference comes from the fact that you didn’t have to pay taxes on the investment gains because you didn’t sell them in order to donate them. And because you gave them to a qualifying charity, there is no tax due because the organization is exempt from a tax obligation on the investment gain.
The value of gifting highly appreciated securities is not limited to large gifts. Our institutional partners, Charles Schwab & Co. Inc. and Fidelity Investments have accounts that will allow you to realize the same tax advantages of gifting highly appreciated securities but with convenience similar to giving cash. Both Schwab and Fidelity offer Charitable Donor Accounts (CDAs) that accept one-time gifts of securities. Once the CDA is established, the donor retains the ability to recommend portions of the account as gifts to qualifying charities, even over many years into the future. As the donor, you receive a tax deduction at the time you make the gift to the CDA. In addition, you are able to realize greater tax savings by using highly appreciated securities.
Besides large one time gifts, you can also consider giving recurring gifts or smaller amounts on an annual basis. Creating a CDA in 2013 may be a good way to meet your planned giving goals in 2014. Whether used for contributions to your Church or your annual United Way contribution, you benefit by not only supporting a cause you believe in but doing so in a tax advantaged way. Whether your charitable contributions are small or large, or consist of one or many gifts, the tax benefits of using highly appreciated securities can be significant. If end of year gifting is on your “to do” list or you would like to maximize the value of your gifts for 2014, contact your SYM advisor to discuss whether this strategy is appropriate for you.
*Highest capital gain tax rate of 20% plus additional 3.8% Medicare tax on investment income