Women & Money: Charitable Giving Tax

Charitable giving

Do you want to participate in involuntary philanthropy – that is, pay estate taxes and let the government decide what to do with your donations? Or would you rather play an active role yourself in where that money goes? Making a gift to a charitable organization will enable you to help those causes you deem worthy, while at the same time reducing your taxable estate. (See Women & Money, Chapter 14: Protect Your Charity” for information on how to make a charitable gift that qualifies for estate tax deduction).

Gifts to Individuals and Income Tax Issues

You are not entitled to an income tax deduc­tion for a gift to a person, and, in the same way, your gift is not considered “income” to the person you give it to.

When giving property rather than cash, however, each asset has what is known as an “income tax basis” – that is what the asset originally cost (plus, if the asset is real estate, any improvements that have been made to it). When an asset is sold, the owner of the asset will pay a capital gains tax based on the difference between the original cost of the asset and the current sale price.

If an asset is given to someone during the donor’s lifetime, then the recipient of the gift inherits the donor’s income tax basis in the property, and when the recipient sells that property, his gain would be the same as the original owner’s. In other words, if this year your mother gave you $20,000 in stock in Gillette that she had owned for a long time, your mother would not pay any gift taxes on the transfer of stock and you would not be responsible for paying any income taxes. However when, at a later point, you sell that stock, you will incur a capital gain that is equal to the difference between the price your mother bought it for, if she paid for it, or the value of the stock when she received it by inheri­tance or, if she received it by gift, then the income tax basis that was handed over to her and the price you have sold it for.

The rules are different when the gift is made at death. If, instead of gifting you the stock during her lifetime your mother had left it to you in her Will at her death, then the $20,000 would be included in her taxable estate (even if there is no tax then due). When that happens the income tax basis in the stock steps up to the fair market value at the time of your mother’s death. When you later sell that stock, any gain will be based on the differ­ence between its value at the time of your mother’s death and the price you get for it.

In most cases this will significantly reduce the gain. For that reason, many people take care to select for gift-giving during their lives property with lower capital gain and save the property with the greatest capital gain for gifts upon their deaths. That is also why, for fed­eral estate tax purposes gifting is not always tax-wise if the federal estate is under or close to the federal applicable exclusion amount (which at least for 2011 and 2012 is $5,000,000 per person).

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently announced the release of an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  Annino’s book is an exhortation, resource and trusted companion for women in all facets of life.  To purchase the book visit:  http://amzn.to/hOHuEV or for more about Annino, visit: www.patriciaannino.com



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