Knowledge and Insights

Dear Holly: I bought Apple at $1.50, now it’s trading at $150.50. I also own AT&T that my grandfather gave me in 1975. These holdings and many others reside in my portfolio. How can I maximize the use of these appreciated assets and minimize the income tax affect?

Dear Reader: One way to take advantage of highly-appreciated stock is to donate it to charity. Appreciated stock held over one year that is donated to charity provides a deduction at the fair market value of the stock on the date of donation. You can even use this stock to fulfill pledges you have already made.

Another way is to leave a legacy. If you do not want to give it all to a specific charity today, you can still take advantage of a current charitable contribution deduction by setting up either a private foundation or a donor advised fund at your local community foundation.

While private foundations are still subject to tax on the net investment income (including capital gains), the maximum rate is 2%. Private foundations are a great vehicle for family philanthropy where family members can be trustees of the foundation and come together to decide what charities to award grants to each year. Mercadien offers administrative and tax compliance services for private foundations.

Donor advised funds at community foundations offer a lot of the benefits of a private foundation without the administrative and tax compliance requirements of private foundations. The donor still helps decide what charity benefits from the advised fund each year.

If you think one of these options might fit your philanthropic goals, contact Mercadien; we will be glad to guide you in selecting the best option for you and your family.

Dear Holly: My granddaughter is getting married and my spouse and I want to give her $28,000 as a gift. Do we need to file a gift tax return since the amount is equal to the annual exclusion we each have available?

Dear Reader: If the gift is written from community property (i.e., a joint account), then it is not necessary to file a gift tax return for the gift to be considered as half from each of you. If the gift comes from an account solely in your name, you must elect gift splitting on a timely filed gift tax return for you to consider half of the gift to be from each of you.

Can my spouse and I decide which gifts to split on the return?

Gift splitting is an all or nothing election made on an annual basis. Consideration of the effect of splitting gifts should be evaluated before the election is made. Ideally, you should try to determine if there is a reason not to gift split as early in the year as possible to allow proper planning (such as writing two checks if splitting is not an option).

If you need further information on gift splitting or would like to submit other personal finance or tax-related inquiries, please contact [email protected] or 609-689-9700.