As many of us conclude another wonderful Thanksgiving holiday and reflect on how lucky we all are, it is also a time to think about those less fortunate than us and any giving that we might consider before year end. With that in mind, here are a couple issues to consider:
The estimates from most mutual fund companies indicate that many funds will be giving significant capital gain distributions this year. Remember, because of the tax law changes in 2013, there are possible additional taxes on capital gains (i.e., a 3.8% net investment Income tax) once your income is above a certain threshold. Check to see what the ex dividend date is for any mutual funds you own (typically mid-December), and consider gifting those shares to avoid paying taxes on any distributions before year end.
Also, think about gifting highly-appreciated stock. After the returns in the stock market over the last 5 years, many investors again have stock and/or mutual funds that have high unrealized gains. Remember, if you gift appreciated assets, you can deduct the full market value of the gift and avoid paying any capital gains taxes. Because of its charitable status, Loaves & Fishes would not have to pay any capital gains tax upon sale of gifted shares.
Even though the IRS did not extend the Qualified Charitable Deduction (QDC) for 2014, there is still a good chance that they will. The IRS has extended this provision basically every year since 2006. In the tax year 2010, they reauthorized the provision in December and for the tax year 2012, it was extended in January 2013 and made retroactive for 2012. So there is precedent for a late year extension. The QDC allows a taxpayer over the age of 70 ½ to direct an otherwise taxable distribution from an IRA directly to an eligible charitable organization. In previous years, an IRA owner could exclude from gross income up to $100,000. Any transferred amount is not taxable and no deduction is available for the transfer. However, QDCs are counted in determining whether the IRA owner has met his or her required minimum distribution for the year. The benefit here is that it can be more advantageous to transfer the money directly to a charitable organization even though you cannot deduct the gift as opposed to taking a taxable distribution and then making a deductible donation.
As always, please consult your tax advisor regarding any of these possible options.
Kevin O’Hara
Private Wealth Advisor, Business Financial Advisor
Kabza, O’Hara & Associates
A private wealth advisory practice of Ameriprise Financial Services, Inc.
L&F Board Member