Consider Year End Gifts of Appreciated Stocks and Securities
By Jackie Jacobs
The end of the calendar year is an ideal time to review financial affairs and investment portfolios. It’s been a good year on Wall Street and many publicly-traded stocks have increased significantly in value. These gains present an opportunity to take advantage of tax laws that encourage charitable gifts of appreciated assets. Gifting appreciated stock directly to charitable organizations — rather than selling the assets and donating the after-tax cash proceeds —can significantly increase the amount of funds that you have available for charitable giving while providing you with a larger tax benefit.
Charitable contributions of long-term appreciated securities (those held for more than one year), including stocks, bonds, and mutual fund shares, remain one of the most tax-efficient ways to benefit a charity. You are entitled to a tax deduction for the full fair market value of such gifts, up to 30% of the your adjusted gross income in the current tax year, and you pay no capital gains tax on any appreciation. In effect, this tax savings goes directly to the Federation in the form of a larger contribution and your lower tax bill leaves you with additional assets that could fund other charitable gifts!
Special note about “Corporate Inversions”: The financial pages have been filled recently with stories about “corporate inversions,” a complex financial transaction where a U.S. multinational company acquires a foreign company located in a “low-tax” country such as Ireland with the purpose of becoming a “subsidiary” or non-U.S .corporation so as to lower its U.S. corporate tax bill. Although the inversion transaction may be favorable for the company, it can have automatic negative tax consequences for U.S. shareholders because it will be considered a “taxable transfer” of existing U.S. corporate stock for new shares in the foreign corporation. This results in capital gain tax of 20 percent for high income individuals (as well as the new 3.8 percent Medicare tax). One solution is a timely pre-inversion gift of appreciated U.S. corporate stock to charity. Time may be of the essence because the charitable gift must be completed prior to the closing of the inversion transaction. Because this closing date can vary due to legal and regulatory issues, it is essential to contact professional advisors if you are a shareholder of inversion-candidate stock.
In addition, you might want to consider other charitable gift planning strategies such as establishing a donor advised fund that can work in tandem with financial and tax savings strategies discussed above. A Donor Advised Fund operates as a sort of permanent charitable planning tool as you benefit from an up-front deduction for the contribution of assets to the account and you can choose which qualifying charities receive distributions at a later date. Next time you consider re-balancing your investment portfolio, the Donor Advised Fund can be the repository for some or all of your appreciated securities. Another gifting strategy to consider would include creating a charitable remainder trust or charitable gift annuity funded by appreciated stock. In addition to avoiding the capital gains tax discussed above, these vehicles could provide you with a current charitable deduction as well as an income stream.
Feel free to call me at (614) 338-2365 for more information about gifts of appreciated property or other giving opportunities such Donor Advised Fund or life income instruments.
This article is for informational purposes only and should not be construed as legal, tax or financial advice. When considering gift planning strategies, you should always consult with your own legal and tax advisors.
Jackie Jacobs is the Chief Executive Office of the Columbus Jewish Foundation, the Central Ohio Jewish community’s planned giving and endowment headquarters.
Article appears as originally published in the Ohio Jewish Chronicle, October 30, 2014.