Save Taxes in 2020 by Gifting Stock
2020 has been a year of crisis. Across the world, people and communities are confronting tremendous challenges related to the corona virus and its economic impact. Charitable organizations are trying to fill this void and assist individuals and families that are struggling just to scrape together the foundational elements of survival.
Mindful of this need, it is imperative to think through gifting options in new and creative ways. These new ideas have the potential to unlock new resources to maintain and strengthen the efforts of your favorite charitable organizations. In this and future posts, I will share some charitable planning techniques that may create new tax and financial planning opportunities.
Consider Stock Gifts Instead of Cash
The most common gift charitable organizations receive is cash. While organizations need cash, there are other, potentially more tax efficient methods for donors to make gifts. One example is to give appreciated stock (stock that has increased in value).
Giving Stock May be Better
To see how a gift of stock can be advantageous, let’s look at a common alternative. If you make a gift of cash after selling a stock that has increased in value, you will likely have to pay ordinary income or capital gains tax depending on how long you held it. If you then gift the cash proceeds to a charity, you only get a deduction if the gift is greater than your standard deduction. This could actually cost you more to make the gift than the gift itself.
Today, with many stocks having recovered from their March lows, it is an especially interesting time to consider gifting stock (or stock mutual funds). With this technique there is a double benefit: you get the deduct the gift (if over the standard deduction amount), and your capital gains tax liability disappears!
Required Minimum Distributions Have Been Waived for 2020!
Additionally, for those over 70.5 who have been making charitable gifts from their IRAs (called Qualified Charitable Distributions or QCDs) to satisfy required minimum distributions (RMDs), the CARES Act waived RMDs, nullifying the tax benefit of this technique for 2020. Lastly, with the economy in a precarious position, stock markets may see renewed volatility before the end of the year. Making gifts now while valuations are strong could be a smart move.
Have Your Cake And Eat It Too!
You might say that you really want to hold on to your stock or stock mutual fund; that it is a fabulous investment. Here is a potential, easy fix. Make the gift of appreciated stock, then buy back the position with your available cash. By doing this you can get rid of a stock with lots of embedded, taxable gains and replace it with a new position at today’s market price; in essence, you have wiped out all the taxable gains! And you can deduct the gift from your taxes (as long as it is more than your standard deduction)!
In Conclusion
2020 is an important year to consider gifting stock. With tax deductibility, capital gains tax savings, and the waiver of IRA RMDs, giving stock is more important than before. Additionally, by making a gift of stock you may create significant space to turn taxable IRA withdrawals into tax-free Roth IRA withdrawals (which we will discuss in a future post). While making stock gifts has its advantages, before implementing this strategy it is imperative to discuss this option with your tax advisor or CERTIFIED FINANCIAL PLANNER™ professional to make sure it is the right solution for you.
