When it comes to year-end tax planning and charitable giving, individuals know the basics, but they can sometimes get tripped up in the details. Mitchell A. Drossman, national director of wealth planning strategies at U.S. Trust, offers a few tips here.
Corporate inversions have been big news this year. (That is, when a U.S. company arranges to be acquired by a foreign company.) But the tax implications for individual shareholders are rarely mentioned.
“With these deals, U.S. shareholders typically have their U.S. shares exchanged for shares of the acquiring foreign company. The problem is that the conversion often is regarded as a taxable event, even though the shareholders have sold nothing and received no cash,” Drossman says.“There is a possible opportunity here, however. If you were planning to give to charity anyway, using shares (owned at least one year) prior to the close of the inversion transaction would allow you to avoid realizing the potential gain. If you have a lot of gain, you may even decide to accelerate your giving and give what you would have given this year and next.” But, he cautions, you need to act quickly, before the transaction becomes inevitable. “Basically, the quicker you transfer the shares the better.”
All gifts don’t receive the same tax deductions. When it comes to charitable giving, gifts of appreciated stock are a great choice from a tax standpoint, but many investments do not fall neatly into the category of “publicly traded stock” and might not qualify for the favorable rules for charitable income tax deductions. Drossman provides some tips on gift types:
- Bonds. The interest component might not qualify for a charitable deduction.
- Leveraged property. These gifts raise complicated tax issues that may result in the recognition of income as well as a charitable deduction.
- Master limited partnerships. While considered a publicly traded security, a gift of an MLP unit (actually an interest in a partnership) does not usually result in a tax deduction at its fair market value.
In sum, says Drossman:“When it comes to corporate inversions and the charitable income tax deductions to particular types of investments, consult with your tax advisor — earlier rather than later.”
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Any information presented about tax considerations affecting client financial transactions or arrangements is not intended as tax advice and should not be relied upon for the purpose of avoiding any tax penalties. Neither U.S. Trust and its representatives nor its advisors provide tax, accounting or legal advice. Clients should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with their personal professional advisors.
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