Besides donating appreciated securities to charity, another solution for avoiding highly taxed capital gains on these securities is to transfer the relevant assets to a family member in a lower tax bracket. The recipient might be able to sell and pay little or no tax on the sale.<\/p>\n
Example: <\/b><\/span><\/span><\/span>Grace Fulton invested $10,000 in ABC Corp. shares <\/span><\/span>years ago. The shares are now worth $18,000; Grace fears the trading price of ABC will drop, so she\u2019d like to sell the shares. However, Grace will face a significant tax bill if she takes an $8,000 long-term capital gain. Therefore, Grace gives the shares to her son Eric, who sells them. Grace\u2019s basis in the shares ($10,000) and her holding period (longer than a year) carry over to Eric, so he reports an $8,000 long-term capital gain. As long as Eric will owe less tax on a sale than Grace would have owed, the Fulton family will come out ahead.<\/p>\n Real problems<\/p>\n This scenario can work in real life, but there are some issues to keep in mind. For one, gifts over $14,000 to any one recipient in 2014 may trigger the requirement to file a gift tax return. There may not be any gift tax owed, due to a $5.34 million lifetime gift tax exemption, but there can be paperwork requirements and the potential loss of estate tax benefits.<\/p>\n Moreover, the so-called kiddie tax limits the advantage of transferring assets to youngsters before a sale. In 2014, “kiddies” are taxed at their own tax rate on their first $2,000 of unearned income and generally owe little or no tax on the income. Beyond that $2,000, though, unearned income is taxed at the parent\u2019s rate. Thus, if Eric Fulton has an $8,000 long-term gain from a stock sale and no other unearned income in 2014, $2,000 would get favorable tax treatment, but the other $6,000 would be taxed at his mother Grace\u2019s rate.<\/p>\n The key question, then, relates to which youngsters are considered kiddies. Generally, that includes children 18 or younger. Kiddie tax status persists until age 24 for full-time students who provide less than half of their own support. Consequently, the strategy described in example 1 would offer little benefit if Eric is a college <\/span>student this year, <\/span>age 23, living nearby and spending most of his time going to class or studying. <\/span><\/p>\n If Eric is age 24, though, going to graduate school, the story can have a happier ending. Instead of selling the stock and paying tax on the gain, Grace can give the shares to Eric, who can make the sale this year. In 2014, a single taxpayer can have taxable income (after deductions) up to $36,900 and owe 0% on long-term capital gains. (The 0% tax rate for such taxpayers also applies to most stock dividend income.) As a result, Eric could keep all $18,000 from the stock sale and use the untaxed dollars to pay his school bills.<\/p>\n In 2014, the 0% rate on long-term capital gains also applies to married couples reporting up to $73,800 on a joint tax return. Therefore, transferring appreciated securities to family members with low to moderate income can be a substantial tax saver. Such gifts might be made to a married son or daughter who is buying a home, for example, or to retired parents who need financial help. However, as with all financial decisions, you should think carefully about all possible outcomes before giving away assets.<\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Besides donating appreciated securities to charity, another solution for avoiding highly taxed capital gains on these securities is to transfer the relevant assets to a family member in a lower tax bracket. The recipient might be able to sell and pay little or no tax on the sale. Example: Grace Fulton invested $10,000 in ABC… Continue reading Year-End Family Tax Planning<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/posts\/55"}],"collection":[{"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/comments?post=55"}],"version-history":[{"count":1,"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/posts\/55\/revisions"}],"predecessor-version":[{"id":56,"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/posts\/55\/revisions\/56"}],"wp:attachment":[{"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/media?parent=55"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/categories?post=55"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.hsco-cpa.com\/blog\/wp-json\/wp\/v2\/tags?post=55"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}