Today marks Giving Tuesday 2014. It is well known that giving comes from the heart and is not typically financially motivated, but it doesn’t hurt to receive a little benefit when your tax liability is reduced. Taxes and charitable giving are unique to the individual. Since these recommendations might not be appropriate for everyone, always check with a professional advisor before making any final decisions.
Donating Appreciated Stock
Starting with the basics, you can typically donate appreciated stocks and mutual funds directly to a charity equipped to accept them. If you want to make several gifts to multiple recipients consider opening a donor advised fund with either Charles Schwab or Fidelity Investments. The donation to a donor advised fund is tax deductible in the year deposited to the account. If you want to make several donations or you aren’t sure which charity you want to give to, the donor advised fund is ideal. For more information on donor advised funds please visit the Charles Schwab and Fidelity Investments websites by clicking the links below.
Qualified Charitable Distributions
The provision that allowed investors 70 ½ and to give up to $100,000 directly to charities from their individual retirement accounts tax free while satisfying all or a portion of their RMDs (Required Minimum Distributions), expired at the end of 2013. As of right now, this provision does not exists for 2014. There is absolutely no guarantee that Congress will bring this provision back, but in the event they do, it’s possible they could decide to make it retroactive to the date it had previously expired as they have done in the past. IF this occurred, any qualifying charitable contributions from your IRA during that period could potentially qualify as a qualified charitable distribution. If you are over age 70 1/2 and make a charitable contribution from your IRA, and they do not retroactively reinstate the provision, the distribution is taxed as ordinary income like any other distribution from your account. Best case scenario, Congress reinstates the provision retroactively and your prior distributions during that period are deemed to be tax free.
Annual Gift Exclusion
In 2014, a single person can give up to $14,000 per recipient and a couple can give up to $28,000 without running into gift tax issues. If you were planning to give a family member a gift, consider giving appreciated stock or mutual fund to those who are in the 10% or 15% tax brackets. Individuals with income up to $36,900 and couples with income up to $73,800 fall in these brackets. The recipients will assume the giver’s cost basis but because they fall in the lowest two tax brackets they will have a 0% capital gains tax rate when selling the appreciated stock or mutual fund. One consideration before doing this is to explore the possibility of paying tax on investment income under the “kiddie tax” provision. Check with a tax professional if you’re unclear whether this applies.
Three years of market appreciation has hopefully left your portfolio with a number of appreciated assets. Before giving cash, consider your options and look to your investments as a source for gifts. You might be pleasantly surprised. Happy giving!