How to giving and save taxes

[calmloki]

We are closing in on an arbitrary net worth number. Thinking that when we hit that number I would like to share the wealth a bit. The gal and I aren't married and file separately and own almost everything jointly. Have a number of 30ish nieces and nephews who earn modest amounts. A chunk of $$ now could be of far greater use to them than decades into the future. Some might make that money work, some might get their noses above their debt and draw a breath, some might just play. We also have some friends who could really use some cash - but they are proud and decent and I'd prefer they didn't know who funded them.

I'm also thrifty and don't really care to give the government any more than I must. Thought about gifting appreciated shares of VTSAX, but am unclear on the mechanism. I understand that the giftee is responsible for the capital gains tax but uses my basis, and that for 2018 I can give $15,000 to each giftee without paying a gift tax out of my pocket. Seems like giving stock to low earning people would get them more than my selling the stock and paying them the proceeds after subtracting my tax burden. How do you give someone stock though? Do the giftees have to have brokerage accounts that I have all the info on? I'd wager none of the giftees have such accounts. And how to make an anonymous gift - of either stock or money? Donor Advised accounts can only give to registered charities, right?

Want to be smart about what gets done, maximizing gifts, minimizing taxes paid, and having all be as simple as possible, while allowing an anonymous gift maybe. Giving is just not something I'm real good at. Halp!

[RunningBum]

I tried gifting stock to a couple of family members a few years back, but got hung up on having them set up account. They weren't local so I couldn't hand hold them through it, and I don't think it was as easy to do online back then I was also looking at smaller amounts so it really wasn't worth the hassle on both ends. And I hadn't even figured out the mechanics of transferring shares to their account. Anonymity would be a real challenge. "Why do you want me to open this account and why do you want to know my account #?"

Your tax burden may not be higher than theirs--you both could be in the 15% gains tax rate. Or if you are paying the HIIT extra, it's just a bit more, unless theirs wouldn't be taxed. But think about whether you are saving enough to make it worth while, unless you're limiting income for other reasons, like an ACA subsidy. Remember that they might be too.

If your tax rates are similar and your goal is to maximize how much you can give them, selling the stock and paying taxes yourself gets them the full $15,000, as opposed to making them pay taxes out of the $15,000.

A DAF won't work for this. As you say, it has to be for a registered charity.

One thought I have is to pay for things like tuition and medical bills. I *think* you can even deduct these on your return, which could be helpful especially if you itemize and then do not. Check this out for yourself. I only quickly looked at medical expenses, and "qualified relatives" count, which covers most fairly close relatives including nieces, nephews, step children, grand children, and even in-laws. See https://www.irs.gov/publications/p502. I've thought about doing this, because most people can hang on, but break when something unexpected happens. You may even be able to go to the school or medical facility and pay bills and keep it anonymous.

Paying things like rent, property taxes, utility bills, etc, might also be a thing you could do anonymously. I'd be prepared to keep it up indefinitely though. If you start doing this and they get used to not having to pay those expenses, it can be a real hardship if a few years down the line they suddenly have to start coming up with money to pay those bills because you've stopped for whatever reason, including death.

[calmloki]

Don't think there are any educational or medical expenses that could be covered.

Our income is from rentals and loan interest - first world problem is the income exceeds our expenses by a fair amount, so we pay bunches of tax. Think most of the recipients would be in the 0% capital gains tax rate, so maybe a $6100 difference in total federal taxes charged for the seven recipients I have in mind (15% capital gains tax vs 0%?). Just would hurt my feelings to casually fund our government any more than I had too.

Trying to distribute wealth early, when it can have more effect, and have that done before my demise, at which point the gal just continues on with all accounts and property in her name alone as the joint owner (me) is out of the picture.

[Souschef]

I gift our 4 sons $$ that comes out of my IRA as part of the MRD. I also make QCD donations to charity out of my IRA and those donations are not taxed.
To the OP, the $15K just requires a gift form you do not pay tax on it. BUT, you can give $15K and your wife can give $15K to each individual.

[calmloki]

Quote:

Originally Posted by Souschef I gift our 4 sons $$ that comes out of my IRA as part of the MRD. I also make QCD donations to charity out of my IRA and those donations are not taxed. To the OP, the $15K just requires a gift form you do not pay tax on it. BUT, you can give $15K and your wife can give $15K to each individual.

Was trying to give appreciated stocks and avoid increasing our income by selling it.

[bingybear]

To be anonymous will likely require an intermediary. Do these people go to church or?? While you can't make a contribution to the church requiring them to forward it to the intended, they might forward it if you were upfront with it.

As for the 15k/pp, exceeding that would require a gift tax return which at first would just reduce your unified exclusion.

Giving people too much can cause some to lottery syndrome. I had one just go on an uncontrollable spending binge until they ran out... and it was not really much. I'm still trying to figure out how to help these people.

good luck.

[jimnjana]

Why not start with a few large visa gift cards or the like? See how they react to a smaller gift ... Could give a annual gift this way rather than a one time large gift.

[Ready]

This article may be of some help to you:

https://www.forbes.com/sites/davidma.../#7c56bfb51027

[audreyh1]

I have mixed feelings about gifting appreciated stock to my family members. I think it would be a hassle for them. Cash is nice and clean even though I pay the taxes.

We already gift a lot to immediate family, and gifting appreciated stock would require them to set up taxable brokerage accounts and then know what to do with the asset transferred. Siblings living overseas might run into difficulty even setting up such an account.

[gerntz]

No problem that people have hassles with appreciated stock gifts; i.e., don't mind they need to do a little work for them. They can tell me if they don't want them. No problem.

Recently did for grandkids so they can take $2100/yr tax free on CG's & Divs. Son had to set up accounts & fill out tax returns. NBD.

[calmloki]

Quote:

Originally Posted by audreyh1 I have mixed feelings about gifting appreciated stock to my family members. I think it would be a hassle for them. Cash is nice and clean even though I pay the taxes. We already gift a lot to immediate family, and gifting appreciated stock would require them to set up taxable brokerage accounts and then know what to do with the asset transferred. Siblings living overseas might run into difficulty even setting up such an account.

Quite right about the hassle for the giftees - and the complexities involved in just dealing with divesting would surely be a challenge for some of them. Cash is simple and clean. Selfish me is nudging a tax bracket that will result in an increase to my medicare and drug costs of about $1k/year. Selling stocks to give cash bumps my annual income, but using bank cash cuts our "ready reserve" fund. I also would like to unload some appreciated shares without paying taxes that lower earning relatives could avoid.

Reality is I have a very fuzzy notion of what is and isn't possible and the tax ramifications. It just seems that slapping about $44k in capital gains onto my annual income would have real nasty tax ramifications. I am over $100k as a single on line 38, nearly all from the rentals and interest income.

[RE2Boys]

Would establishing an irrevocable trust with someone other than you as trustee work
They wouldn't need to know you did it, just that they are the beneficiary. Of course, the legal fees & tax complexity would be upped quite a bit.

[Koolau]

We did do a qualified gift of stock (tax write-off) but the charity's broker charged a huge fee to settle the cash. As I recall, I was allowed to write of the full value of the stock, but the charity was out hundreds of dollars. I couldn't believe it.

We send checks directly to our kids' Roth accounts to avoid anything going wrong before the money can actually get there. So far so good. Kids could be millionaires by the time we're 100!

Perhaps, calmloki, you could give the gift over two years to lower the amount per year. Just a thought.

I'm with you as far as giving it away now instead of later. I'd like to be around to watch it being used (or in the case of the kids, watching it grow for THEM.) YMMV

[bingybear]

Quote:

Originally Posted by Koolau We did do a qualified gift of stock (tax write-off) but the charity's broker charged a huge fee to settle the cash. As I recall, I was allowed to write of the full value of the stock, but the charity was out hundreds of dollars. I couldn't believe it. We send checks directly to our kids' Roth accounts to avoid anything going wrong before the money can actually get there. So far so good. Kids could be millionaires by the time we're 100!

Using a donor advised fund is a great way to give to charities and it avoids the high cost of converting normal investments to cash. You can leave it invested in the DAF (in investments of the DAF) until you are ready to fund a charity.

Funding a roth sounds great, but be careful that they don't contribute also. Could really screw up their taxes. If they do know, then you might need to be concerned if the child withdraws the funds early.
I have one child that I would fear would pull the $. The other one funds his own retirement investments. The second one wants to know how to retire in his 50's.