Let's skip the gift allowance and get right to cash versus stock.
When it comes to year end gifts, if you have owned an appreciated security for over a year, giving it to charity lets you deduct the current fair market value. Neither you nor the charity every have to pay tax on the gain. This is for charitable contributions.
If you're talking about gifts for estate planning purposes, it's usually best to give away stocks that might appreciate in the future so you get that future appreciation out of your estate.
If Congress doesn't act, the amount of gifts protected from the federal gift tax will fall from $5.1 million this year to $1 million in 2013
Wow, that's a pretty big drop Kevin.
that's why we call it a cliff
We actually have another question relating to the gift tax from Gordon
We have a story in the upcoming issue that addresses this. While everyone wants to avoid estate taxes, you should never give away money you may need in the future. Gifts must be irrevocable, so you can't ask for the money back. Don't succumb to pressure, Gordon!
Hey. Gordon, watch your wallet!
And even if the estate tax drops, most of us won't have to worry about it.
Have a nice Thanksgiving...
Alright, let's move on to this next question from Jon about the Bush tax cuts
Oh, my...let me count the ways. Remember the first Bush tax cut was before the 9-11 terrorist attacks and that was a long time ago.
One study says the average tax bill will go up $3,700 a year
And while we're still talking about the gift tax, here's a follow-up question from jsj.
But none of us are average. The first thing you'll notice is the end of the 10% bracket, so the rate on your first $17,000 on a joint return will jump to 15%..that will cost you $850.
The child care credit will go down.
The marriage tax penalty will roar back to life.
The child will be cut in half from $1,000 to $500
Those are two big ones, Kevin.
We'll see the estate tax exemption drop from $5.1 million to $1 million and the rate jump to as high as 55%.
And a whole slew of tax breaks we've become accustomed to will go away, affecting everything from college tuition payments to charitable gifts from IRAs.
The tax rate on dividends will go from 15% to your top tax bracket, as high as 39.6%
As you see, there's a lot packed into this fiscal cliff.
Regarding JSJ's question about gifts to a trust: you need to talk to an estate-planning lawyer. The rules governing trusts are quite complex.
Do you think any members of Congress are tuning into our chat? ;)
We have another question from Diane about capital gains.
I hope they're working on solving the problem, but more likely they're on the campaign trail. The lame duck session after the election is going to be amazing...
Amazing in that they might actually get something done?
Yes, it's there for 2012, but expires at the end of the year. If you're in the 10% or 15% bracket, any long term gains are tax-free. If your gains push you out of the 15% bracket, just the gains that fall in the 25% bracket will be taxed at 15%.
That's why this is a good time to review your portfolio. Normally, we say you shouldn't let taxes dictate your investment strategy, but this is an extraordinary tax break.
Amazing as a whole lot to do in a short period of time. I'm not optimistic that they'll reach an big agreement, more likely they will kick the can down the road with a few months extension of the tax cuts and holding off on the budget cuts.
Also possible that the cuts will expire...and then have to be revived, at least in part, in the next Congress
One good thing about the fiscal cliff is that the government is kinda tethered to a bungee cord...even if we fall off, the next Congress can quickly right the ship...if I can mix a metaphor here or there