Making Tax-Efficient Donations and Gifts

Building on our recent tax newsletter, below are some charitable giving suggestions that might help reduce taxes while providing some personal fulfillment.  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

Investors 70 ½ and older this year can give up to $100,000 directly to charities from their individual retirement accounts.  Gifting directly from your IRA may potentially fulfill required minimum distribution requirements without having to make a taxable withdrawal.  Not many investors are in a position to give such a significant amount, but if you are, doing so is a great way to simultaneously fulfill a gift and the required minimum distribution in a tax efficient manner.


Annual Gift Exclusion

In 2013, 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 $36,250 and couples with income up to $72,500 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.