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Consider Year-End Gifts of Appreciated Stocks/Securities

December 11, 2013 By:
Steven M. Woolf

The end of the calendar year is an ideal time to review financial affairs and investment portfolios. Many publicly traded stocks have increased significantly in value this year. These gains present an opportunity to take advantage of tax laws that encourage charitable gifts of appreciated assets.

Gifting appreciated stock directly to the Federation — 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 such as the Federation. You are entitled to a tax deduction for the full fair market value of such gifts, up to 30 percent of 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.

Here’s an example of the increased contribution and tax savings generated by donating stock directly to the Federation: Alan and Betty, a couple with an adjusted gross income of $500,000, filing jointly, donate appreciated securities worth $100,000 that they owned for more than one year. The illustration assumes they originally paid $20,000 for the stock and they pay federal taxes at the highest marginal rates.

As the above example shows, if Alan and Betty gift the stock rather than the cash, the Federation receives an additional $19,040 in value to fund services to the community and Alan and Betty save over $7,500 on their tax bill.

In addition, you might want to consider other gift-planning strategies, such as establishing a donor-advised fund (“DAF”) that can work in tandem with financial and tax savings strategies discussed above. A DAF operates as a sort of permanent charitable planning tool as you benefit from an upfront 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 rebalancing your investment portfolio, the DAF can be the repository for some or all of the appreciated securities.

Another gifting strategy to consider would include creating a charitable remainder trust (“CRT”) funded by appreciated stock. In addition to avoiding the capital gains tax discussed above, the CRT could provide you with a current charitable deduction as well as an income stream for a period of years.

For more information about gifts of appreciated property or other Federation giving opportunities, such as establishing a donor-advised fund or charitable remainder trust, contact Rachel Gross at 215-832-0572.

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 advisers.

Steven M. Woolf serves as Senior Tax Policy Counsel for Jewish Federations of North America.

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