By Allyn Hughes, CFP®, ChFC®, CLU®, CAP®
2017 is a very good year to make gifts to not-for-profits. If the new tax legislation passes, two important changes will occur for individuals and families: 1) their standard deduction will double to $12,200 for single filers and $24,400 for joint filers. This means that fewer folks will have enough tax deductions so they can be itemized. 2) Because tax rates for most will go down in 2018, for many of us a gift made in 2017 will provide a bigger deduction if completed this year.
Moreover, most U.S. and international stocks have had very good returns in 2017. As a result, you may want to think about employing additional gifting strategies to help make the most of your year-end contributions to your favorite not-for-profits.
Strategy 1 – Gift unknown basis stock
Many people who have owned stocks for a very long time might not know the cost basis (i.e. purchase price plus additional contributions over time). For many years, financial companies did not have to track this information, so it wasn’t always captured. If this occurred to you, we suggest that rather than writing a check for your charitable contribution, you gift shares of stocks for which you don’t know the basis. To do this, you will want to identify the stock and the number of shares you want to gift and the not-for-profit that should receive these shares. You’ll want to contact the not-for-profit and ask them if they will accept gifts of stock. If they will accept stock gifts, then ask for the details of their account (where it is held and the account number). Then, you can either contact your investment management firm or your own stock broker and provide them with this information so they can make the transfer. You will complete a form, and the stocks will be transferred to the not-for-profit institution. Best of all, you will receive a tax deduction for the value of this transfer, so this gift can be very beneficial for all.
Strategy 2 – Gift low basis stock
Stock shares that have a very low basis are also ideal candidates to fund contributions to not-for-profits. The increases in the U.S. stock market over the past seven years have helped many stocks hit all-time highs recently. If you were fortunate enough to buy one or more stocks at low share prices, and have amassed a large gain, it might make sense to gift some of these well-performing shares. As above, you will have to work with both the not-for-profit and either the custodian of the stock or your broker to determine how to best make this transfer.
Strategy 3 – Gift from your IRA
IRAs are tax-inefficient investment vehicles. All distributions from IRAs are taxed at your marginal ordinary income tax rate. If you are over age 70½ and are taking Required Minimum Distributions (RMDs) from your IRA(s) each year, you can gift directly to a charity (up to $100,000 per year) and you won’t have to pay tax on your contribution. If you are in the 28% tax bracket, that means that your contribution of $1 costs you just $0.72 to make. Coordinating IRA distribution/not-for-profit contribution takes some work, but if you have a large IRA, and are charitably inclined, this can be a great way to support a favored organization(s).
During this season of giving, the tax code is such that when we give to others, we also get something in return.
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