Tax Savings Tip – Should you Gift Cash or Stock?


**Check out the accompanying video to this blog post for illustrations on this topic of gifting.

Key Takeaways

  • You may give $14,000 per person every year—$28,000 per person if you’re married.
  • Understanding the difference between gifting cash or stock can save you thousands in capital gains taxes.
  • Couples with above $250,000 AGI now pay approximately19 percent on capital gains, but they pay zero if AGI is under approximately $75,000—that’s key if you’re thinking of helping out on a major purchase.

***Call us anytime to walk you through these and other tax mitigation strategies before year end

December is here and that means two important things on the calendar: holidays and tax planning. I know one’s a lot more fun to discuss than the other is, but this is the best time of year to look for deductions, credits or other ways to mitigate your taxes for 2014.

One of the important rules that came out of the 2013 tax code changes was the permanent tax on capital gains. That’s where there is a portion of capital gains, depending on your taxable income, that’s in a zero-percent tax bracket (say if your married taxable income is under approximately $75,000).

Remember, you can give $14,000 per person every year–$28,000 per person per year if you’re a married couple. So if you and your spouse want to help a married child with a major purchase, you can gift $56,000 ($28,000 for your child and $28,000 for his or her spouse). We often get asked by clients how they can help a young couple in their family with say, $50,000 for a down payment on a house. Sure you can sell $50,000 in stock and give the $50,000 to the kids in cash. But if that stock cost you $25,000 when you bought it (i.e., your cost basis), then you may have to pay up to 19 percent in federal taxes on that $25,000 gain, depending on what your tax bracket is. That’s potentially $4,750 in federal taxes.

Better ways for raising cash

In this next scenario, we’re not selling stock, but gifting the $50,000 in stock to the young couple. So if the parents have a $250,000 AGI and the young couple has a $50,000 AGI, the stock goes from the parents’ approximately 19 percent bracket into the young couple’s zero-percent bracket. And then what the child is going to do is sell the stock, paying no capital gains tax, and still ending up with $50,000. So the result is approximately $5000 less paid to the federal government to take advantage of these two different tax brackets and make a very valuable gift between family members. Just kind of a neat strategy. It works in many different scenarios.

Conclusion

Before going down this road, you may want to contact your accountant, your CPA, your most trusted advisor, or us, to walk you through these and other tax mitigation strategies before year end.

**Remember to check out the accompanying video to this blog post for illustrations on this topic of gifting.

So until next time, enjoy, Gary

www.coylefinancial.com
800-480-7913 | coyle@coylefinancial.com

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