“First, he wants to raise the top tax rate to 39.6%, a benefit for donations and a bigger tax savings," said Robert Karon, Minneapolis-based managing director at CBIZ MHM. Second, he would increase the tax rate on long-term capital gains and dividends to 39.6 percent on income over $1 million. This would make some special gift vehicles like charitable remainder trusts and gift annuities more appealing,” he said, noting that these two changes can reduce or eliminate capital gains when used for charitable purposes. Biden also wants to cap itemized tax deductions for the wealthy, including for charitable donations.
To adopt to the changes, Karon has used private family foundations and charitable lead trusts, for example, for high-net-worth clients to make charitable contributions. The former have tighter donation limits than some donating tools. The latter use a formula of time, fair market value and compounding return to calculate growth for the beneficiaries while providing a regular and recurring donation to a charity, he said.
Among other tools, a donation of appreciated stock still generally makes sense for wealthy taxpayers, added Kathleen Buchs, a CPA and director at MAI Capital Management in Cleveland. The donor gets the double benefit of a charitable deduction for the value of the stock and avoids gain recognition on the appreciation in value. That combination is especially good with today’s increased stock valuations, she said.
"Take an individual who donates $100,000 of publicly held stock held for more than 12 months with a zero-cost tax basis,” Karon said. “If that individual sold this stock, their tax cost would be 23.8% federal, or $23,800. You can deduct up to 30% of your AGI with appreciated stock. You get a 100% tax deduction for the fair market value of that stock and pay no tax on the appreciation.” Some high-tax rate states offer more tax savings on big donations, he said.