Linda P. EricksonLinda P. Erickson, CFP®, is the president of Erickson Advisors and a registered principal offering securities through Cetera Advisor Networks, LLC, 336-274-9403 lindae@ericksonadvisors.net.
At the end of the year, I urge clients to think about how to lower their taxes for this year and next.
Changes in the tax law this year have increased the capital gains tax rate and overall taxation of income producing assets for higher income taxpayers. Just about everyone has seen a rise in the valuation of their stock portfolios, and we hate to lose a portion of that to taxation. So what can we do?
This could be a great time to lock in your gains and save on taxes by making a gift of appreciated assets to your favorite charity. There are several ways to do this:
Gift Directly
Gift your appreciated investments directly to your favorite charity. Take the charitable deduction for the current value of the assets, and let the charity sell them for the cash it will need to operate. Remember — gift, then sell.
Lifetime Income
Create a lifetime income that could be higher than you currently receive from your bonds, CD’s or Money Market. Gift the appreciated assets to your favorite charity through an arrangement called a Gift Annuity, take a tax deduction for a portion of the appreciated value, and receive a monthly income for you and your spouse. Because you will receive income based on the full value of your gift, it may be significantly more than you might have received from the “after-tax” proceeds of a sale you did yourself.
Charitable Trust
A Charitable Remainder Trust is another way to capture the gain on appreciated assets and at the same time turn that gain into a lifetime income either now or at some future date. Setting up such a Trust allows you to receive income when you want it and name one or several charities, your schools, or your church to receive what “remains” after your death.
This could be the last year to make a gift from your IRA directly to your charity — all without raising your income for Social Security taxation or Medicare Part B calculation purposes. You must make the gift directly to the charity; you cannot take possession of the money and then make the gift. While this technique does not relieve you of the Required Minimum Distribution, it might be a way to satisfy a pledge or your long held desire to make a substantial charitable gift.
All of these tax reduction techniques should be reviewed with your financial planner and your tax advisor before taking any action, and you may get lots of help from the established charities as you think through your options. Just remember, to get that tax deduction the gift must be completed before the last day of the year.