The Gift That Keeps on Giving

savingsDuring this time of year, people are always on the lookout for the perfect gift for everyone on their list. As Christmas draws closer and the ideas dwindle, we move into the second phase of gift giving…writing out checks. Many parents give money to their adult children for Christmas gifts. But one consideration they may not have thought about is the gift of appreciated stock, which could shift their children’s capital gains into a lower tax bracket.

As a review, federal capital gains taxes are divided into a few different brackets. Individuals in the lowest income tax brackets are subject to a 0% federal capital gains tax (In 2016, this bracket includes single filers with income of$37,650 or less and married filing jointly individuals with income of $75,300 or less). By contrast, individuals in the highest tax bracket are subject to a 23.8% federal capital gains tax. (The highest bracket for 2016 is affects single filers with income of $415,050 or more, and married filing jointly individuals with income of $466,950 or more). Additionally, capital gains taxes on a state level vary from state to state – depending upon where you reside, you could be subject to upwards of 13% or more in taxation.

You may be asking, what about gifting to minor children? Over a decade ago, gifting appreciated stock was the preferred college education funding tool for grandparents of young children. However, with the introduction of the Kiddie tax in 2006, dependents aged 23* or younger can be subject to the tax rate of their parents, on investment assets. (*This is only applicable if the child is a full time student).

However, for adult children over the age of 24, gifting appreciated stock may result in some significant reduction of taxes owed. For 2016, the annual gift amount that is excluded from estate considerations is $14,000. This means that a mother and father could each give $14,000  in appreciated stock to both a child and their spouse (a total of $56,000).

While this scenario is a great option when a child needs money now, if this is not a need, it might be a better idea to include them in your estate plan moving forward. If you want to learn more about year-end gifting tips, feel free to contact us!

About Objectively Speaking

Tom Batterman, founder of Vigil Trust & Financial Advocacy and Financial Fiduciaries, LLC is in the business of representing the best financial interests of his clients. Having provided objective, fee-only financial management services for over two decades, he specializes in managing the investment and related financial affairs of individuals and mutual insurance companies who do not have the time, interest or expertise to manage such matters on their own. As an objective, unbiased professional who takes on a fiduciary responsibility to his clients, he guides clients to the financial decisions they would make themselves if they had years of training and experience and the time and expertise to fully research and understand all of their options. Founded in 2010 as an outgrowth of Vigil Trust & Financial Advocacy, Financial Fiduciaries, LLC is a financial management solution for individuals and mutual insurance companies who recognize they do not have the time, interest or expertise to properly attend to their financial matters on their own. While there are many financial “advisors”, most of them have investment products to sell and the “advice” they provide is geared toward getting their clients to engage in a purchase. As one of the rare subset of advisors known as “fiduciary advisors”, Financial Fiduciaries does not sell any investment product so its guidance is not compromised by conflicts of interest which plague ordinary advisors. Prior to his employment in the financial industry in financial advocacy and trust positions, he worked at a private law practice in the Wausau area in the areas of estate planning, tax, retirement planning, corporate organizations and real estate. He is a graduate of the University of Wisconsin-Madison and the UW-Madison Law School and has during his career held Series 7, 24 and 65 securities licenses. A longtime resident of the Wausau, Wisconsin Area, Tom is active in the community. He enjoys golf, curling, skiing, fishing, traveling and spending time with his family.
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