Capital Gains and the New Tax LawSubmitted by Financial Planning Solutions, LLC on February 22nd, 2018
Nothing changed for investors with regard to the new tax law. But other tax law changes have renewed focus on making the most of your investment decisions. This is especially important after such a strong year for US and foreign stocks in 2017. Many investors now have significant unrealized gains and few, if any, losses to offset those gains. When they go to sell, they may be in for a big surprise. Here are some ways to manage it.
Gifting stock remains a valuable tool for families especially if the recipient is in a lower tax bracket. Recently one of our clients told us that their daughter is getting married and they are planning to pay for it. Their plan was to take some cash and write a check as a gift. While writing a check is easy, it does nothing to eliminate a capital gains tax that will very likely have to be paid someday. And for taxpayers that do not have the cash available, selling stock and then giving cash is not very tax-efficient.
A better way to make the gift is to transfer highly appreciated stock from the parents to the daughter equal to the amount of the planned gift. In 2018 you can gift up to $15,000 per recipient per donor without becoming subject to gift tax. That gift could be as much as $60,000 with each parent giving $15,000 each to the daughter and fiancé.
If the donee has taxable income of less than $38,600 (single) or $77,200 (married filing joint), they may pay no tax at all when the stock is sold. Keep in mind that selling the stock could push you or the donee above these thresholds.
Tax rates on capital gains and qualified dividends
Married filing joint Single Rate
Up to $77,200 up to $38,600 0%
$77,201-479,000 $38,601-425,000 15%
$479,000+ $425,800+ 20%
Charitable Donations - Another option is to gift shares of appreciated stock to a qualified charity. If you are currently giving cash to a charity, giving stock is another way to “get rid of” your built up unrealized capital gains.
With the Standard Deduction doubling in 2018 to $24,000 (married filing joint), many more taxpayers will find that the standard deduction is more valuable than itemizing their deductions. If you no longer itemize deductions, you won’t be deducting charitable donations. As such, “bunching” deductions every few years can make donations to charities worthwhile so that you can exceed the new, higher $24,000 threshold and benefit more fully from your donations.
Still have questions about investment income taxes under the new tax law, give us a call. We’re here to help.
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.