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What a Problem to Have!

Your investments outperformed your broker’s most optimistic predictions this year, leaving you with a capital gains-laden portfolio.  What can you do with your windfall?  You can sell investments to realize your profits. (Check first with your tax adviser to make sure your estimated taxes and withholding are adequate to avoid an underwithholding penalty next April.)  But if you sell your stock or liquidate mutual fund shares, you’ll lose 15%, or more, of the profit that you’ve earned to capital gains taxes.  However, there are several alternatives that offer tax savings and include assistance for the charities you support financially.

Outright gifts
Your gift of appreciated stock or mutual fund shares held for more than one year entitle you to a charitable deduction for the full fair market value — and you don’t recognize the gain that has accrued.  For example, Charlie, a taxpayer in the 28% tax bracket, saves $2,800 in income tax by contributing stock worth $10,000.  If the shares originally cost $2,500, there is an additional savings of $1,125 in capital gains taxes that would have been paid if the shares had been sold.  Charlie is able to make a $10,000 gift at a cost of only $6,075 ($10,000 - $2,800 - $1,125).  The savings are even higher for taxpayers in the 39.6% income tax bracket, who pay a 20% capital gains tax rate, and for those who are subject to the 3.8% net-investment income tax (adjusted gross income in excess of $200,000 for single taxpayers and $250,000 for joint filers).

Gifts that pay you income
Your appreciated stock also can be used to fund one of several gift arrangements that provide you — or you and another — with payments for life.  In addition to the income tax charitable deduction for a portion of the value of the shares, your gift also offers capital gains tax savings, potential estate tax savings and the satisfaction of making a generous contribution to favorite charities.  Your gift even can be arranged to begin payments at a later date — retirement, for example — to augment other retirement plans.


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