Tax Considerations For Gifting During Your Lifetime

By: Brian Vomund, CPA Vice President, Wealth Management Consultant
You may be thinking about giving gifts to family members and charities during your lifetime, instead of leaving gift amounts in your estate. Gifting during your lifetime would allow you to see recipients enjoy your generosity. Beyond simply being generous, you may also be able to reduce current income and future estate taxes.1

Tax Considerations
There are certain gifting methods that allow you to pass assets to the next generation or charitable organizations in a tax-free manner. With tax laws and guidelines changing from year to year, it is important to revisit your strategy regularly. Here are some key considerations to guide your gifting strategy. 

KEY CONSIDERATIONS TO GUIDE YOUR GIFTING STRATEGY

Gifting cash to charity
Previously, cash contributions to a public charity (if you itemized deductions) were capped at 60% of your adjusted gross income (AGI). In 2020, the CARES Act allows you to deduct up to 100% of your AGI. For example, if your AGI in 2020 was $500,000 and you made cash qualified charitable contributions in the same amount, you won’t owe any taxes for the 2020 tax year. If your contributions exceed your AGI, the excess can be carried over for the next five years and will be subject to percentage limitations in the carryover years. Lawmakers are set to decide if this will continue through 2021. 

Gifting stocks and managing capital gain taxes
Gifting low-cost basis stock for charitable contributions is usually a win-win scenario for the donor and the charity. The charity can sell the stock tax free to raise cash; the donor gets a tax deduction up to 30% of AGI and avoids the capital gains tax on the stock. 

If you’re gifting to an individual to help with an upcoming major expense (i.e., college, house, or a new car) and the recipient is in the 12% tax bracket or less, you can also gift low-cost basis stock. Any capital gain will be taxed at a federal tax rate of 0%.

Finally, if you have stock in a loss position, you might consider selling the stock first, recognizing the loss yourself for your own tax benefit, and then gifting the cash. 

Gifting from an Individual Retirement Account (IRA) 
If you’re age 70-1/2 years of age or older, qualified charitable contributions (QCDs) allow you to transfer up to $100,000 each year directly to charity from an IRA or inherited IRA. If you are age 72 or older, this distribution also counts toward your annual required minimum distribution (RMD) and allows for the amount to be excluded from taxable income. 

GIFTING HIGH-COST BASIS ASSETS 
If you’re gifting assets that are intended to be held for the long term, gift high- cost basis assets vs. low-cost basis assets. By gifting the asset, you remove it from your taxable estate—but you also lose the opportunity for a step up in cost basis upon your death. If you hold an asset with a low-cost basis when you pass away, the asset receives a step up in cost basis and any capital gain prior to death has been eliminated. 

WE CAN HELP 
When planning your lifetime gifting strategy for the people and causes you love, it’s important to seek the advice of your tax, legal, and financial advisors. Contact Commerce Trust Company today—we’re here to answer all your questions regarding your options and help you make informed decisions that are in your best interest. 

¹Consult your tax advisor 

The opinions and other information in the commentary are provided as of February 23, 2021. This summary is intended to provide general information only, and may be of value to the reader and audience. 

This material is not a recommendation of any particular investment or insurance strategy, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified tax advisor or investment professional. While Commerce may provide information or express opinions from time to time, such information or opinions are subject to change, are not offered as professional tax, insurance or legal advice, and may not be relied on as such. 

Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. 

Past performance is no guarantee of future results. 

Diversification does not guarantee a profit or protect against all risk. 

Commerce Trust Company is a division of Commerce Bank. 

NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE


 

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ABOUT THE AUTHOR

Brian Vomund, CPA, PFS Senior Vice President, Wealth Management Consultant Commerce Trust Company

Brian is a wealth management consultant for Commerce Trust Company. He facilitates the introduction of our prospective clients to a comprehensive service team which includes private banking, investment management, trust administration, and financial planning. Brian provides an integrated and seamless client experience as we partner with clients to meet their long-term goals and objectives.      

Prior to joining Commerce in 2006, Brian was an associate vice president in private client services, specializing in estate planning as well as IRA and retirement distribution planning. He is a Certified Public Accountant and Personal Financial Specialist.        

Brian earned his Bachelor of Science in business administration from Saint Louis University. Brian is a member of the Knights of Columbus and Moolah Shrine organizations and is a past president of the Missouri Society of CPAs on its Estate Planning Committee. In his spare time, Brian prefers to do anything outdoors with his family. Family vacations include activities such as hiking, white water rafting, horseback riding and snow skiing. Brian also enjoys hunting, playing sports and swimming.