Personal Finance

Discover the Emotional and Fiscal Benefits of Philanthropy

Senior Estate Planner, Mike Repak, discusses strategies for year-end gifts that can help reduce taxes come filing time.



Giving back to enrich one’s community can be one of the most rewarding experiences for both the donor and recipient. According to CharityNavigator.org, Americans gave more than $358 billion to charities in 2014*. There has been a consistent increase in giving over the past five years, so we hope this trend continues. While the act of philanthropy can yield heartwarming results, there are also lucrative benefits to giving as well, specifically when it comes to taxes. Although it is never a good idea to allow the “tax tail to wag the dog,” it is necessary to consider what benefits you are entitled to prior to making a gift to your favorite charity. In addition, it is important to speak with your advisors (financial, accounting, legal) about the timing of a gift so that you can optimize your gifts to meet your specific needs.

There are many options for charitable giving, from direct contributions of cash and property, to donor-advised funds, foundations, and charitable trusts. Consider gifting securities that you have held for at least one year. This will help to ensure you receive the full value deduction for the donation and that you will not have to pay capital gains tax on the securities’ appreciation.

Gifts to Family

You can give $14,000 annually to any individual ($28,000 for a couple) and that gift is exempt from tax reporting. People with large families can save significant taxes by taking advantage of this provision. Payments made directly to the providers of health or educational services on behalf of another person are also excluded from gift tax consequences. This can allow grandparents to pay tuition for their grandchildren as a way of reducing the size of their taxable estate.

Cash Donations


Outright gifts of cash (which include donations made via check, credit card and payroll deduction) are the easiest. The key is to substantiate them. To be deductible, cash donations must be:
  • Supported by a canceled check, credit card receipt or written communication from the charity if they’re under $250,
  • Substantiated by the charity if they’re $250 or more, or
  • Made to a qualified charitable organization
Deductions for cash gifts to public charities can’t exceed 50% of your adjusted gross income (AGI). The AGI limit is 30% for cash donations to non-operating private foundations. Contributions in excess of the applicable AGI limit can be carried forward for up to five years.

Stock Donations


Appreciated publicly traded stock that you’ve held for more than one year is long term capital gains property, which can make one of the best charitable gifts. Why? Because you can deduct the current fair market value and avoid the capital gains tax that would be due if you sold the property. However, caution should be used if you are seriously ill or elderly, as it may be worthwhile to hold very low basis stock for your heirs so that they may receive a step-up in basis at your death.

Donations of long-term capital gains property are subject to tighter deduction limits—30% of AGI = for gifts to public charities, 20% for gifts to nonoperating private foundations. In certain, although limited, circumstances, it may be better to deduct your tax basis (generally the amount paid for the stock) rather than the fair market value, because it allows you to take advantage of the higher AGI limits that apply to donations of cash and ordinary income property (such as stock held one year or less). Don’t donate stock that’s worth less than your basis. Instead, sell the stock so you can deduct the loss and then donate the cash proceeds to charity.

Charitable Remainder Trusts


To benefit a charity while helping ensure your own financial future, consider a charitable remainder trust (CRT). CRTs, which have always offered benefits to individuals, could become very attractive again—if the capital gains tax rate increases to 20% and the 3.8% Medicare surtax applies. Since appreciated assets that are transferred to a CRT are not taxed, the full value of these assets is available to provide income to the donor, generating much more income than if the donor had sold the asset, paid the capital gains tax, and reinvested the proceeds.
  • For a given term, the CRT pays an amount to you annually (some of which generally is taxable).
  • At the term’s end, the CRT’s remaining assets pass to one or more charities.
  • When you fund the CRT, you receive an income tax deduction for the present value of the
    amount that will go to charity.
  • The property is removed from your estate.
A CRT also can help diversify your portfolio if you own non-income-producing assets that would generate a large capital gain if sold. Because a CRT is tax exempt, it can sell the property without paying tax on the gain at the time of the sale. The CRT can then invest the proceeds in a variety of stocks and bonds. You’ll owe capital gains tax when you receive CRT payments, but because the payments are spread over time, much of the liability will be deferred. Plus, only a portion of each payment will be attributable to capital gains; some may be considered tax-free return of principal.

Charitable Lead Trusts


To benefit charity while transferring assets to loved ones at a reduced tax cost, consider a charitable lead trust (CLT):
  • For a given term, the CLT pays an amount to one or more charities.
  • At the term’s end, the CLT’s remaining assets pass to one or more loved ones you name as remainder beneficiaries.
  • When you fund the CLT, you make a taxable gift equal to the present value of the amount that will go to the remainder beneficiaries.
  • The property is removed from your estate.
For gift tax purposes, the remainder interest is determined assuming that the trust assets will grow at the Section 7520 rate. The lower the Sec. 7520 rate, the smaller the remainder interest and the lower the possible gift tax—or the less of your lifetime gift tax exemption you’ll have to use up. If the trust’s earnings outperform the Sec. 7520 rate, the excess earnings will be transferred to the remainder beneficiaries tax-free. Because the Sec. 7520 rate currently is low, now may be a good time to take the chance that your actual return will outperform it. With the current historically low rates, charitable lead trusts can be used now by charitably-inclined individuals to shift significant wealth while using only an insignificant amount of their estate/gift tax exemption.

Remember to discuss all gifting and tax questions with your experts. Working together, your Janney financial advisor, accountant and attorney can determine the best outcome for your family and tax situation.

*Source:

http://www.charitynavigator.org/index.cfm/bay/content.view/cpid/42#.Vh_JQO5Ol8E

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Michael Repak
Michael Repak
Vice President/Senior Estate Planner
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Mike provides advice and guidance in all aspects of financial, tax, and estate planning issues. He earned his Bachelor’s degree from William Paterson University in Wayne, New Jersey, and has a Master’s degree from the University of Wisconsin in Madison, Wisconsin. He has a CPA/PFS credential, and Series 7 and 66 securities licenses. He received his J.D. from the University of Florida and his LL.M. in Tax Law from NYU. 

He has been an adjunct professor in the MBA program at Temple University and is a sought-after speaker for professional conferences and events. He is also frequently featured as a Money Doctor on www.360financialliteracy.org, the public education site of the American Institute of Certified Public Accountants. Mr. Repak has served on several non-profit and civic boards, is a graduate of Leadership Philadelphia, and a member of the Union League of Philadelphia.


Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any taxrelated statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

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