Every day people pay taxes they don’t need to pay. An entrepreneur enters into a deal to sell the business they developed; an owner of an investment property receives an unsolicited, but attractive, offer; a real estate agent receives a call from a client inquiring about possibly listing a property. Tax planning, if any, associated with these events seldom includes charitable giving.
Many times I have been contacted by the sellers, who turn out to be quite philanthropic, who wish to start a charitable fund. They tell me how they generated the funds, and I try not to wince as I ask them if they paid any capital gains. When someone is setting up a charitable fund, the last thing you want to do is diminish the good feelings they have for their charitable plans.
The bottom line is that they gave away money to the government, and they likely have less in their pocket and/or less for charity. Between last week and this week I’ve met with three potential clients, or their professional advisors, who are considering combining a charitable gift with their upcoming sales. They all have charitable intent and, depending on that intent, avoiding some or all of the capital gains tax is a definite consideration. Here is one example.
A person owns a property with an estimated sale value of $3 million and $1 million in basis. If the person sells the property, they pay 20% on $2 million gain, or $400,000. By using a simple software program, I can estimate that by gifting 28.8% of the property to the Foundation prior to the sale they will avoid all taxes. They will avoid $115,108 of capital gains tax and (based on their tax bracket) earn a gift deduction of $284,892. End result is that they end up with $2,136,691 in their pocket and $863,309 in their charitable fund. It is true that they would have had a bit more in their pocket if they had not made the gift, but, they would have had to pay the $400,000 in capital gains, and that is a big number.
For a person who was planning to use some of the proceeds to benefit charity anyway, this is a no-brainer solution. People really don’t know that they have this option,,so please help spread the word. If you are the person who tells a friend or colleague at the right time, you will indeed become their hero. The Community Foundation of Western Nevada helps with these transactions, which can be combined with funding a charitable trust, establishing a family foundation, a scholarship fund, and many other ideas. If we can help, please give me a call.
Chris Askin, President and CEO,
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