Consider Donating Appreciated Stock & Mutual Funds

One way to reduce your tax bill this year is to donate appreciated stock to a charity of your choice versus writing a check. This part of the tax code provides a tax benefit to you in two ways:

  1. Higher deduction. Your charitable gift deduction is the higher Fair Market Value of the appreciated stock on the date of your donation and not what you originally paid for it.
  2. No capital gains tax. You do not have to pay tax on the profits you made on the stock. As long as you have owned the investment for over one year, you can avoid paying long-term capital gain tax on the increased value of your stock.

A Sweet Example

Winnie and Christopher each own 100 shares of Honey, Inc. that they purchased for $1,000 three years ago. Today the stock is worth $5,000. Winnie sells the stock and donates the proceeds to “Save the Bees” while Christopher donates his stock directly to “Honey Overeaters: Finding a Cure”. Assuming a 15% long-term capital gains tax rate*, a 25% income tax bracket, and no other limitations:

Donations table

Not only does Christopher see $750 in additional federal tax benefit by donating his appreciated stock, but Honey Overeaters has $600 in additional funds to use for their charitable program.

* Long-term capital gains tax rates on this type of investment can be as high as 23.8% for those in the 39.6% income tax bracket.

Other benefits

  • The Alternative Minimum Tax (AMT) does not impact charitable deductions as it does with other deductions.
  • Remember this approach also provides more funds to your selected charity. By donating cash or check, those additional funds are instead paid as federal taxes.
  • This tax benefit could be worth even more in 2013 with the increase in the maximum long-term capital gain tax rate from 15% to 20% and the introduction of the potential 3.8% Medicare surtax for investments.
  • This benefit is for everyone who itemizes deductions that have qualified assets, not just the wealthy.

Things to consider

  • Remember this benefit only applies to qualified investments (typically stocks and mutual funds) held longer than one year.
  • Consider this a replacement for contributions you would normally make to qualified organizations.
  • Talk to your target charitable organization. They often have a preferred broker that can help receive the donation in a qualified manner.
  • This benefit also works for mutual funds and other common investment types, but be careful as many investments such as collectibles, inventory and other property do not qualify.
  • Contribution limits as a percent of Adjusted Gross Income may apply. Excess contributions can often be carried forward as deductions for up to five years.
  • How you conduct the transaction is very important. It must be clear to the IRS that the investment was donated directly to the charitable organization.

If you think this opportunity is right for you, please contact a trusted advisor to ensure you handle the donation correctly.

2014 Mileage Rates

The IRS recently announced mileage rates to be used for travel in 2014. The Business, Medical, and Moving mileage rates decrease one half cent versus 2013 while charitable rates remain unchanged. Business mileage decreases 1/2 cent per mile.

2014 New Mileage Rates

Standard Mileage Rates


2014 Rate/Mile

Business Travel




Charitable Work


Here are 2013 rates for your reference as well.

2013 Mileage Rates

Standard Mileage Rates



Business Travel




Charitable Work


With 2014 right around the corner, please plan accordingly.


Understanding Tax Terms: the kiddie tax What you know can help you

The term “kiddie tax” was introduced by the Tax Reform Act of 1986. The IRS introduced this rule to keep parents from shifting their investment income to their children and have this income taxed at their child’s lower tax rate. The law requires a child’s unearned income (generally dividends, interest, and capital gains) above a certain amount ($2,000 in 2013) to be taxed at their parent’s tax rate. Here is what you need to know.

Who it applies to

  • Children under the age of 19
  • Children under the age of 24 if a full-time student and providing less than ½ of their own financial support
  • Children with unearned income above $2,000

Who/What it does NOT apply to

  • Earned income (wages and self-employed income from things like babysitting or paper routes).
  • Children that are over age 18 and have earnings providing more than ½ of their support.
  • Older children married and filing jointly
  • Children over age 19 that are not full-time students
  • Gifts received by your child during the year

How it works

  • The first $1,000 of unearned income is generally tax-free
  • The next $1,000 of unearned income is taxed at the child’s (usually lower) tax rate
  • The excess over $2,000 is taxed at the parent’s rate either on the parent’s tax return (Form 8814) or on the child’s tax return (Form 8615)

What to know/do now

  1. Maximize your low tax investment options. Look to generate gains on your child’s investment accounts to maximize the use of your child’s kiddie tax threshold each year. You could consider selling stocks to capture your child’s investment gains and then buy the stock back later to establish a higher cost basis.
  2. Be careful where you report a child’s unearned income. Don’t automatically add your child’s unearned income to your tax return. It might inadvertently raise your taxes in surprising ways by exposing more income to the Alternative Minimum Tax or reducing your tax benefits in other programs like the American Opportunity Credit.
  3. Leverage gifts. If your children are not maximizing their tax-free investment income each year consider gifting funds to allow for unearned income up to the kiddie tax thresholds. Just be careful, as these assets can have an impact on a child’s financial aid when approaching college age years.

Properly managed, the “kiddie tax” rules can be used to your advantage. But if not properly managed, this part of the tax code can create an unwelcome surprise at tax time.

2014 Social Security Benefits Announced

The Social Security Administration recently announced monthly social security and supplemental security income benefits (SSI) will increase in 2014 by 1.5%. This increase is based upon the Consumer Price Index over the past 12 months ending in September 2013. In addition, other figures based on the national average wage index will also be changed. A recap of the key amounts is outlined here:

2014 Key Social Security Benefits

2013 Social Security Benefits

What does it mean for you?

  • Up to $117,000 in wages will be subject to Social Security Taxes (up $3,300 or $205 in additional Social Security tax per employee and per employer)
  • The average Social Security retirement beneficiary will receive an additional $228 in 2014.
  • For all retired workers receiving Social Security retirement benefits the average monthly benefit of $1,275/mo. in 2013 will become $1,294/mo. in 2014.
  • SSI (Supplemental Security Income) is the standard payment for people in need. To qualify for this payment you must have little income and few resources ($2,000 if single/$3,000 if married).
  • A full-time student who is blind or disabled can still receive Supplemental Security Income (SSI) benefits as long as earned income does not exceed the student exclusion amounts listed above.

Social Security & Medicare Rates

After temporary payroll tax rate cuts that ended in 2012, the rates do not change from 2013 to 2014.

2013 Withholding Limits

Note: The above tax rates are a combination of 6.20% Social Security and 1.45% for Medicare. There is also a Medicare .9% wages surtax that began in 2013 for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in these figures. Please recall that your employer also pays Social Security and Medicare taxes on your behalf. These figures are reflected in the self-employed tax rates, as self-employed individuals pay both halves of the tax.

Research Your Preferred Charities

November and December seem to be the months we are rained upon with charitable organization solicitations. Some of the groups, such as the American Red Cross, the Salvation Army, United Way, and the American Cancer Society are household names. Others are less known. Here are some tips on how to research these organizations prior to donating funds.

1. Charitable organization efficiency. For every dollar you donate, only a percentage of it is actually used to fund programs. Much of your money is used for fundraising and administrative costs. So how do you know which charitable organization is using your contribution most effectively? Here are three web sites that can help you assess potential charities.

2. Avoid Fraudulent Solicitations. It is often best to avoid donating over the phone or via email solicitations. These are two common ways thieves target their victims. Instead of reacting to a phone call or email, a better idea is to pro-actively plan who you wish to give money to each year. An additional benefit of this approach is that you avoid the fees paid to these middlemen fundraisers out of your donations.

3. Confirm the Deductibility. Many smaller organizations will represent themselves as a qualified charitable organization, but have not kept their non-profit status up to date. If unsure whether your desired charity has kept their records up-to-date, you can check the IRS web site for a full list of qualified organizations. Here is the link:

4. Needing a receipt. Remember cash donations $250 or more require a written confirmation from the charitable organization of your donation in addition to your canceled check or bank receipt. If you are not sure whether a confirmation will be forthcoming, limit your deduction to some amount under this $250 threshold.