Brunswick Report, December 2013

REPORT Str ate g i e s

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B R U N S W I C K

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Charitable Opportunities in Year-End Tax Planning

It has been a great year on Wall Street! As of the December 10 close, according to the Wall Street Journal, the Dow 30 Industrials were up 21.5%. The S&P 500 was up 25.8%. The NASDAQ was up 33.9%.

As such a strong market year nears its conclusion, your family’s greatest 2013 tax savings through charitable giving may be realized through gifts of appreciated securities.

In fact, there are several ways to capitalize on tax laws in order to accomplish your end-of-year planning for charitable contributions.

Giving Appreciated Securities In making charitable gifts, it’s almost always tax-wise to contribute appreciated securities instead of cash. Nevertheless, many individuals still instruct their investment advisors/ brokers/trustees to sell securities and raise cash so that checks can be sent to charities they support. But transferring stocks instead of writing checks provides far greater tax savings for you and your family — and may actually increase the tax benefit to you and the charitable benefit to the institution.

Let’s assume additional 2013 charitable contributions that your family plans to make before the end of the year total $10,000. Assume also that you own stocks personally (not in your IRA or other qualified plan) that have appreciated in

Capital Gain Stock Sold, Cash Donated: Comparing Alternatives Type of Gift

Tax Cost* Tax Deduction

Income Tax Savings**

Net Tax Savings**

Cash

$1,428

$10,000

$4,000

$2,572

$10,000

$4,000

$4,000

Stock

0

* Assumes tax rate of 23.8% on long-term capital gains

**Assumes combined marginal rate (federal and state) of 40%

value and have unrealized long-term capital gains. Assume your aggregated basis in these stocks is $4,000.

If you sell the stocks and contribute the cash of $10,000 to charity, you’ll receive an income-tax charitable deduction

Act Now for 2013 Tax Benefits

To claim deductions for the 2013 tax year, gifts must be received by Brunswick, or credit cards charged, on or before December 31, 2013. In light of increased rates on long-term capital gains (and the 3.8% Medicare tax) affecting some taxpayers in 2013, gifts of appreciated securities may be of significant tax benefit if made before December 31. Please call or e-mail Tom Murray, Executive Director of Development (203-625-5864; tmurray@brunswickschool.org) for wire transfer instructions.

Gifts from IRAs Individuals over age 70 1/2 this year may make charitable gifts from an IRA account directly to Brunswick before December 31 and not be required to pay income tax on all or a part of their Required Minimum Distribution.

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Brunswick REPORT

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‘Banking’ Your Charitable Gifts

Suppose you desire a significant income-tax charitable deduction for 2013 but aren’t yet ready to decide what charities will receive your gifts or how much they’ll each receive. Your family may be able to make contributions deductible in 2013 before the end of the year and still reserve final decisions until 2014 or later.

Establishing a Donor Advised Fund (DAF) with an exempt organization formed to hold, invest, and administer these funds offers a solution. A DAF can be established quickly and easily, often on line. Brunswick’s development staff can suggest and provide contact information for qualified DAF organizations.

are used, full avoidance of tax on any long-term capital gains.

◆ A named fund, grants from which you may recommend from time to time.

Let’s assume you want to generate an itemized charitable deduction for 2013 of $50,000 to reduce your adjusted gross income and, thus, reduce your tax liability. Assume also that you use either cash or appreciated securities to fund a DAF, recognizing that using appreciated long-term capital gain property may be more tax efficient (as described above).

◆ A fund that may grow in value; and you have the right to recommend grants from the growth and income earned on your fund.

◆ An ongoing philanthropic vehicle for family use. ◆ Modest administrative charges against your fund by the DAF organization.

You could establish a DAF with a qualified organization, give your fund a name (for example, the name of you and your family), and make a gift or gifts to the fund.

◆ The privilege to recommend how your fund will be invested, subject to the policies of the DAF organization.

With a DAF, your family reserves the right to make recommendations for grants from your fund to any qualified tax-exempt charitable organization after December 31, subject to the approval of the DAF organization, while still realizing the tax benefit in 2013. If your grant recommendation is to a qualified organization, your request will invariably be approved.

In effect, you’ll have established a private foundation alternative that some refer to as a “charitable bank” — a smart, long-term philanthropic strategy.

For more information, contact Tom Murray, Executive Director of Development (203-625-5864; tmurray@brunswickschool.org).

As a 501(c)(3) nonprofit organization, Brunswick School would always be a qualified charity.

G i v ing A p p r e ci at e d S e curiti e s

Your family isn’t bound by any time frame to make grant recommendations. You may leave your DAF intact and reserve decisions indefinitely, subject to the policies of the DAF organization. You and others may be listed as recommenders of your DAF. Your children or others may be recommenders after your lifetime, subject to policies of the DAF organization.

of $10,000 to itemize on your return. However, you’ll have also realized a long-term capital gain of $6,000, which may be subject to tax at a federal rate of up to 23.8%. That gain will be reported on your 2013 return and may result in a tax of up to $1,428 ($6,000 x .238). There may be an additional state tax cost.

By establishing a DAF, your family will have secured:

◆ A current income-tax charitable deduction for the full value of your contribution; and, if appreciated securities

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Electronically transferring the stock from your account to the account(s) of your selected charities will avoid the $1,428 in capital gains taxes. Considering the tax savings from the charitable deduction in this example, the net cost of the gift is only $6,000.

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