Planning Insights

Year Round Strategies to Maximize your Generosity and Minimize Taxes

We’ve all heard the old adage about death and taxes being inevitable. Of the many ways to minimize the tax bite, being generous often tops the list.

Oliver Wendell Holmes is known to have said, “I like to pay taxes. With them I buy civilization.” Few of us can claim to have that kind of noble view when we write big checks on April 15th, and in fact most of us look for ways to decrease the tax bite. Family and charitable giving are a great way to decrease your tax bill, but it doesn’t just matter that you give, it matters how you give. And while year end is a common time for charitable giving, we think that giving at any time of the year is equally wise and welcome. As we head into the early months of 2015, there are plenty of tax-smart ways to fulfill our clients’ wishes around charitable and intra-family giving. Here some moves to consider:

Gifts to charity

• If you plan to make a significant gift to charity this year, consider giving appreciated stocks or mutual fund shares that you've owned for more than one year. Low basis stocks are often a good choice because you benefit from a tax deduction as well as the removal of future capital gains from your portfolio (and estate).
• If you have a sizeable stock position that you wish to donate to charity, it might make sense to open a donor-advised fund, which is a terrific way to get a current year tax deduction while preserving the option to donate in the years ahead. Donor-advised funds are flexible and easier to set up than private foundations, while offering the ability to direct your giving to a multitude of organizations.

Gifts to family and friends

• Remember that you can make gifts of up to $14,000 to as many people as you choose without having to report it for gift tax purposes. This amount is referred to as the “annual exclusion.” To make the most of your gifts to kids and grandkids, consider vehicles that encourage long-term goals such as saving for college. If you’re married, you and your spouse can give up to $28,000 per recipient.
• Another way to reduce the tax hit on appreciated securities is to gift shares to your child or grandchild—they may even qualify for a 0% rate on capital gains if they sell the position in 2014.
• Fund 529 Plans for kids and grandkids. These plans are a terrific way to save for college, because earnings grow tax-deferred and are distributed tax-free if used to pay for college expenses. Direct tuition payments made on behalf of a relative also pay off tax-wise, because they don’t count against the $14,000 annual exclusion.
• Did your child or grandchild work this year? A Roth IRA is a great gift. You can give $5,000 or what the child earned, whichever is less.