“This is a question too difficult for a mathematician. It should be asked of a philosopher” (when asked about completing his income tax form) – Albert Einstein
It seems daily, I see a new story of someone telling of a significant increase in their wealth from their stock or cryptocurrency investments. All the rumors and news in the last year around the markets have led to new millionaires and even billionaires. Yet the skeptical side of me wonders, how many have actually sold and truly profited at this point. I would bet that many have not because of the tax implications, but now there is a growing pressure to decide very soon. One of the most frequent questions that we get right now, is what do next after the new administration’s plan for higher capital gains tax rates.
First, as a reminder, never make an investment decision solely off the potential tax ramification. Always look for the method to maximize after-tax returns. In other words, never let a tax decision outweigh your investment decisions. Second, don’t sell just because of your fear of tax increases. You should have until the end of the year to see if a new tax policy can become law. Use the next six months and form a plan with your tax advisor.
There are many of our clients that have said they have had a significant increase in their overall wealth and now they feel burdened to giving more this year. The first rule don’t sell the security and give the cash until you have reviewed all your tax planning options. Giving appreciated securities will allow you to get the full market value of your gift and therefore not have to trigger the capital gain tax when you sell the security.
The use of charitable giving done right can actually lessen your tax burden and may help you make more adjustments to your portfolio. For example, consider using an accelerated giving plan combined with a donor advised account to maximize the tax benefit this year. If you normally give around $10,000 per year, you can give $30,000 this year and use the Donor Advised Account to give from for the next three years. This is a great tax strategy to help lessen the burden of the spike this year in your income taxes and help you help you get the bigger tax deduction when you need the extra help.
If you would like to talk with us in more detail or to find out more about our firm, visit www.boxfinancial.com.
Box Financial Advisors is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the transaction of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy. Past performance is not indicative of future performance.