The Armbruster Capital Management News & Education section of our website incorporates articles, vidcasts, and newsletters specifically geared towards issues that our clients are facing today.

ACM Journal - Investment Management
21 Apr

Chris’s Corner – Q1 2021 Newsletter

CARES Act Update and The Benefits of Gifting Stock

Some elements of the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act have been extended into 2021. On the positive side, individuals who do not itemize deductions on their tax returns can still claim the $300 universal charitable deduction that was part of the original CARES act. Even better, the 2021 extension has doubled the amount to $600 for couples who file their tax returns jointly.

Unfortunately, other elements of the CARES act were not extended. Required minimum distributions (RMDs) on qualified retirement accounts (IRAs, inherited IRAs, 401(k)s, etc.) were waived last year, but are back on in 2021. As a result, anyone age 72 or older as of December 31, 2021, must take their RMD by year-end to avoid penalties. There is an exception, which extends the deadline to April 1, 2022, if this is your first time drawing the RMD.

Recently there have been a lot of news articles and chatter about potential upcoming tax law changes. Although nothing has been finalized, some of the more radical proposals could have a significant impact on estate plans. Predicting what will ultimately be enacted is impossible. However, there are still strategies that should be considered regardless of the proposed changes. Using appreciated stocks for gifting is one of these.

The benefits of gifting appreciated stocks to charities include a charitable deduction for the full value of the donated shares, as well as avoiding capital gains taxes. A less used, but still valid strategy is using stock for gifts to individuals, including family members.

The annual gift tax exclusion limit to individuals is still $15,000 per person and $30,000 for married couples. The value of the gift is determined on the day you transfer the stock, and any amount given over $15,000 ($30,000 if married) counts towards your lifetime exclusion, which is currently $11.58 million or double that if married. Although you won’t receive the same tax benefits you get for charitable gifts, using stock for gifts to individuals will help you avoid paying capital gains tax on the appreciated stock.

When you gift stock to an individual, you also transfer your original cost basis. This may make sense if your child, parent, or friend is in a lower tax bracket or won’t pay any capital gains tax. Capital gains tax rates depend on income brackets. For individuals with taxable income under $40,400, or $80,800 for couples filing jointly, capital gains are not taxed. Also important to note, is that the individual who receives the stock only incurs capital gains taxes when they sell the shares.

As with all aspects of our complicated tax code, there are a couple special situations. For example, if you are gifting stock to minors (children or grandchildren) you should be mindful of the “kiddie tax” rules. Also, having a lot of assets in a child’s name could have a negative effect when applying for need-based aid for college tuition.

In summary, gifting stock can sometimes be a more efficient way to transfer money than using cash. We’re happy to talk through your situation in more detail if you think this could make sense for you.

To Download the complete Newsletter please click below.