Contributing to missions, ideas, communities, organizations, etc., that are collectively larger than any one of our individual selves is definitely a “feel good” moment. Knowing that charitable acts of kindness in their many forms are a way for individuals and families to create an impact, it is also a fantastic way to mitigate taxes.
Since the introduction of federal income, gift, and estate tax charitable deductions over a hundred years ago, the tax code has provided significant incentives for charitable gifts and bequests. Certain types of charitable transfers are given more favorable tax treatment than others.
Lifetime charitable gifts are more favorable than gifts at death, charitable gifts to public charities like Fay Rural Community Foundation are preferable to gifts to private foundations, and gifts of appreciated property held long-term are typically better than cash gifts.
Many individuals use cash to make charitable gifts each year. While cash gifts are quick and easy, they are often suboptimal from a tax perspective. Appreciated property held long-term is, typically, the most attractive form of property to give to charity during a donor’s lifetime. Why is that the case? Let’s look at an example. If you were to make a $20,000 gift of cash to charity, you would get a $20,000 income tax deduction. If, on the other hand, you have a $20,000 low-basis publicly traded stock that you have owned for more than a year, you would get a $20,000 deduction, but you would also avoid tax on the built-in capital gains. This effectively lowers the cost of the gift to the donor. When in doubt, always give low-basis publicly traded stock held long-term to charity.
Another attractive aspect of gifts to public charities (for example, FRCF, hospitals, schools) is that the gifts are treated more favorably by the tax code than gifts to private foundations (typically established by a single family or corporation). The gift of long-term appreciated stock to a public charity generally allows you to bypass paying capital gains (which you would have to pay if you sold the stock), and you can take an income tax deduction for the full fair-market value, up to 60% of your adjusted gross income.
Thinking holistically about giving for tax efficiency is mission critical. For US persons, in 2023, the federal estate and gift tax exemption amount increased by almost $900,000 per person from $12.06 million in 2022 to $12.92 million (or $25.84 million for married couples), creating significant new opportunities for gifting, even for those who had previously used up all their available exemptions. This is important because taxes are imposed on transfers by gift during life or at death above the aforementioned threshold. Making gifts of assets during life or leaving assets at death to non-charitable individuals or entities above that threshold will incur a 40% tax on the amount over the threshold. This exemption amount is historically high, as it was temporarily increased under the Tax Cuts and Jobs Act of 2017. That temporary increase is set to expire on December 31, 2025, after which point it will be cut approximately in half. This means there may only be a few years left to take advantage of the increased threshold amount, making it an optimal time to create impact and tax efficiency by gifting to Fay Rural Community Foundation!
Meet Danielle D’arcy
In her current role of Senior Vice President in the Private Wealth Management division of UBS, Danielle provides transparent stewardship, investment leadership and authentic advice to multi-generational families, meaningful land owners, entrepreneurs, business executive, private foundations, new and sophisticated investors, and venture capitalists.
For more information regarding donating stock to Fay Rural Community Foundation, please connect with Susan Ferrin, Executive Director, at 406-577-9821. To learn how gifting can be a meaningful part of your wealth management plan, please contact Danielle D’Arcy, Senior Vice President, Private Wealth Management, at UBS, at danielle.darcy@ubs.com.