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Giving is a powerful tool for individuals and families to have a positive impact or create a legacy. If done right, it also provides estate and tax planning benefits. Learn more about these benefits and ways to utilize gifting below.
CHARITABLE GIVING • TAXES • GIFTING
Charitable giving in the U.S. reached $471.44 billion in 2019 (Source: Giving USA). This amount has increased steadily in nine out of the last 10 years. As shown below, individuals give for many different reasons which could include having a greater impact on a specific issue area or cause as well as creating a legacy (i.e. endowment for a professor, musician, student, etc.).
Charitable contributions are an itemized deduction. As long as an individual is itemizing deductions on their tax return rather than taking the standard deduction, they are able to utilize this tax benefit. To qualify for this deduction, there must be an irrevocable transfer of assets to a qualified charitable organization. In layman’s terms, this means that you can’t recall the gift in any form.
In most cases, the fair market value at the time of contribution qualifies as an itemized deduction.
Limits on deduction:
Reducing Capital Gains
Contributing highly appreciated securities is a powerful way to decrease or eliminate capital gains while also minimizing income tax owed.
Alternative 1: Contribute cash from the sale of securities
Alternative 2: Contribute appreciated securities
Gifting to family members and others during one’s lifetime is rather common, but can have significant tax ramifications if done poorly.
Annual Gifting Exclusion
Medical & Education Expenses
Gifts to a Spouse
The cost basis of appreciated assets is transferred to a recipient if gifted while the donor is alive. Inherited assets receive a stepped-up basis to the date-of-death value.
In some cases, the recipient will receive a depreciated asset such as a real estate property. If the donor is alive and the asset is sold for less than fair market value, fair market value at the time of the gift will be considered the cost basis. If the asset is sold for more than the original donor’s cost, the original cost will be used to determine the gain. If the asset is sold between fair value and original cost basis, the gain or loss will be zero.
If the asset is gifted at death, the cost basis is stepped down to the value of assets on the date of the death. If the asset is sold between fair market value and original cost basis, the gain or loss will be zero.
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