Doing Well by Doing Good

12-Dec-2013

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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. Oxstones.com also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.







By Tara Thompson Popernik and Paul Robertson, Alliance Bernstein,

Charitable giving remains one of the few ways that US taxpayers can avoid taxes outright. If you’re philanthropically inclined, giving can be a win-win that benefits you and society at the same time.

 

The American Taxpayer Relief Act (ATRA) raised the marginal income tax rate for some individuals and thereby increased the value of their charitable tax deductions. If a donor in the highest bracket gave $1,000 to charity in 2012, when the top tax rate was 35%, the charitable tax deduction would have been worth $350, and the effective cost of the gift to the taxpayer would have been $650. In 2013, the same donor making the same gift faces a 39.6% income tax rate, so the deduction is now worth $396 and the effective cost of the gift is just $604 (Display 1).

 

 

Charitable Giving Helps You Avoid More Taxes Today

 

Keep in mind, though, that ATRA also reinstated a limit on itemized deductions for high-income taxpayers that diminished the value of their charitable deductions. For individuals with an adjusted gross income (AGI) above $250,000 and couples with an AGI over $300,000, itemized deductions are now limited by whichever is smaller: 3% of the amount their AGI exceeds the threshold, or 80% of the deductions claimed. (AGI is total gross income minus certain business expenses and other specific items.) However, for taxpayers who pay state income taxes or local property taxes, or have mortgage interest deductions, this new deduction limitation will not materially impact the deduction value of their charitable gifts.

Donate Cash or Assets?

In most situations, you’ll be better off donating appreciated securities instead of cash, as long as you’ve held the securities for at least one year. The advantage of giving securities is that, when they’re sold, neither you nor the charity will be taxed on the capital gain. You’ll be entitled to a charitable deduction that’s equal to the securities’ current market value. So, in effect, you’ll avoid two forms of taxation at the same time—ordinary income tax and capital gains tax.

If you’ve held appreciated securities for less than one year, you won’t want to give them to charity because your charitable deduction will be equal to your cost basis (the price you paid) rather than the securities’ present (higher) value. If you’re thinking of giving securities that have declined in value, you should not give them directly. You’ll be better off selling them and then donating the proceeds. This will allow you to book a capital loss that you can use to offset gains realized elsewhere in your portfolio.

Gifts of cash and assets are subject to different limitations. When you donate cash to a public charity, your deduction can be as large as 50% of your AGI during the year you make the gift, but when you donate assets, your deduction is limited to 30% of your AGI. Any deductions above these thresholds can be carried forward for use during the five subsequent years.

Creating a Charitable Vehicle

If you will have unusually high income or gains in 2013, this might be a good time to establish a donor-advised fund or a private foundation. Both of these vehicles allow you to decouple decisions about asset donation from decisions about grantmaking. If you make a large donation this year, the resulting charitable deduction could help offset your high income in 2013. Then, in subsequent years, you can decide how you want to distribute the money to grantees. Within the private foundation or donor-advised fund, the assets will grow in a tax-advantaged environment.

Note that different rules govern deductions for gifts to donor-advised funds and to private foundations. Donor-advised funds are considered public charities, so cash gifts are generally deductible up to 50% of AGI and stock gifts up to 30% of AGI. However, cash gifts to private foundations are deductible up to only 30% of AGI and stock gifts up to 20% of AGI.

Giving from an IRA

Finally, if you own an IRA and are over the age of 70½, you have one other alternative, but it is quickly disappearing. If you act before December 31, 2013, you can still give as much as $100,000 from your IRA directly to charity, and it will count as part of your required minimum distribution for the year. No tax (or tax deduction) will result from the gift, but it could provide a tax advantage: Since the distribution will not be part of your gross income for 2013, it might help you stay below the threshold for a higher tax bracket. However, you might benefit more if, instead, you donate appreciated securities from your taxable portfolio. Before acting, you should review these options with your tax professional.

The views expressed herein do not constitute, and should not be considered to be, legal or tax advice. The tax rules are complicated, and their impact on a particular individual may differ depending on the individual’s specific circumstances. Please consult with your legal or tax advisor regarding your specific situation.

Tara Thompson Popernik is Director of Research in the Wealth Management Group, and Paul Robertson is a Senior Portfolio Manager at Bernstein Global Wealth Management, a unit of AllianceBernstein.

http://blog.alliancebernstein.com/index.php/2013/11/15/doing-well-by-doing-good-2/

 


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