Want to Shrink That Tax Bill? Revisit Gifting
After three years of strong markets, many stock investors received an unwelcome surprise this April: a tax bill for the rally they enjoyed. And while the market may be down so far this year, many portfolios still hold significantly pent-up gains.
If this sounds familiar, consider your options. You can support our mission while saving on taxes next year with two popular giving strategies.
Give Appreciated Stock—It May Cost Less Than You Think
Tax deductions are harder to come by these days. But when gifting stock, you may receive a tax deduction based on the fair market value of the shares you’ve donated.¹ Plus, you avoid embedded gains—all while supporting our important cause.
Once the tax benefits are factored in, the overall donation may cost less than you think. For instance, a gift of $10,000 effectively costs only $5,110, once tax savings are included.²
Consider Bunching Your Gifts
To receive a tax deduction for making a gift to charity, donors need to itemize the deductions on their tax return. For most taxpayers, the standard deduction exceeds their itemized deductions. But bunching may help push itemized deductions above the standard deduction threshold.
Here’s how it works: Instead of making charitable gifts each year, aggregate two or potentially several years’ worth of gifts into a single tax year.³ If you go this route, you’ll itemize deductions on your next tax return. Then in the years that follow, you’ll go back to claiming the standard deduction. Please speak to your tax advisor to see whether bunching gifts can save taxes for you.
Either of these strategies can help turn gains into gifts that keep giving. To get ahead of the curve for next year, consider donating today.
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If you have questions about this information or about making your year-end gift to the Southwest Conference, please contact Treasurer Scott Greenwood or at 602-468-3830.
This guidance is excerpted from Bernstein’s recent blog Want to Shrink That Tax Bill? Revisit Gifting.
¹For stock that is owned more than one year, your deduction is based on the fair market value of the gift. For stock owned less than a year, your deduction will be based on the lesser of the fair market value or your cost basis.
²Assumes a $10,000 gift of securities with an unrealized gain of $5,000 receives a $10,000 tax deduction that offsets income subject to the top tax rate of 37% (netting $3,700). Further assumes taxpayer avoids realizing the embedded $5,000 gain, and the resulting $1,190 tax bill. Taken together, the total tax savings equals $4,890.
³Charitable deductions for gifts to public charities are limited to 60% of adjusted gross income (AGI) for cash gifts and 30% of AGI for a gift of an appreciated asset.