President Biden released some details of his proposed income tax increase, which includes among other things, calling for treating long-term capital gains as ordinary income for taxpayers with annual income exceeding $1M. Those impacted by this change would pay federal taxes on long-term capital gains at a rate of as much as 43.4%!
While the passage of this proposed bill is a long way off, and certainly not a given, it would reemphasize the importance of using long-term appreciated securities to fund charitable donations instead of writing checks.
For those not familiar with this strategy, gifting long-term appreciated securities allows you to maximize your tax benefit – securities gifted receive a tax write-off similar to writing a check, plus the appreciation on those securities gifted is not subject to capital gains taxes. In practice, instead of writing a check to the charity, please call us to identify the most highly appreciated security in your taxable accounts so your Moneta team can coordinate the donation of an equivalent amount of that security to the charity.
If you would not otherwise want to lose that investment that was donated, you could take the check that you were previously going to write to the charity and instead write it to your investment account so we can buy back the security that was donated or another appropriate security. In this way, you forever eliminate the unrealized capital gain on the security donated and avoid the associated tax that would come at such time in the future if that security would have been sold. It is effectively like you received a “step-up in basis” to current market value. And since eliminating a tax-free step-up in basis at death is also being considered under the Biden tax plan, this charitable strategy would become even more valuable. And, as noted above, that tax on capital gains could be about to get very expensive for those earning more than $1M.
Bottom line, please be aggressive at reaching out to us at any time you plan to make a charitable contribution so that we can best advise you on how to make that gift in the most tax favorable manner.
– Your Moneta Team
© 2021 Moneta Group Investment Advisors, LLC is an SEC registered investment advisor and wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. Moneta is a service mark owned by Moneta Group, LLC. These materials were prepared for informational purposes only based on materials deemed reliable, but the accuracy of which has not been verified. Given the dynamic nature of the subject matter and the environment in which these materials were prepared, they are subject to change as additional legislation and government analysis come forth. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. These materials do not take into consideration your personal circumstances, financial or otherwise.