Financial Insights

A Black Friday And Cyber Monday Respite

By now most understand that the popular explanation for the phrase “Black Friday” is because the day represented the point in the year when retailers begin to turn a profit, thus going from being “in the red” to being “in the black”.  It can also represent the darkness that has come from decades of crazed shopping turmoil. The Cabbage Patch chaos of ’80s, the Tickle Me Elmo tug of war of the 90’s and the current play station or big-screen TV smash downs come to mind.  Ironically for many “black Friday” is the day of the year that they can go “in the red”, not so much financially but spiritually.

Assuming that you are going with the trend and shopping from your smartphone instead of your smart car, then the ease of Cyber Monday can actually do more damage to your apple pay while keeping you from the crime scenes.  Between the convenient clicks for commerce, I would like to suggest a few different ways to give during this day of deals.

Gifting the Garments

Let’s start with the easiest way to help someone while helping yourself. Before adding to your closet (or someone else’s) start today by taking inventory.  Thin your herd of the garments that have fallen to the “waist” side.  Donating on this day of getting can help give the soul the much need fuel to get through the holiday hype. And if you do decide to go out to bricks and mortar retailers you’ll find the Salvation Army clothes bins in most parking lots.  However, your local place of worship might be the best choice to make the biggest impact.

Kindness through Cash

Let’s face it there is nothing like cash to jump-start someone else’s life. Every year, you can give up to a certain amount to anyone you want without having to pay a gift tax. For 2019, that amount is $15,000 per person.

Gift taxes can be exceedingly high, with current federal rates of as much as 40%.   However, that still doesn’t mean that you’ll actually have to pay any tax should you give more than the allotted annual exclusion amount. There’s also a lifetime exemption from gift and the estate tax that you’re allowed to use. For 2019, the exemption is $11.4 million. Unlike the annual exclusion amount, the lifetime exemption applies to all the gifts you make, rather than on a per-person basis.  The only time you actually pay any gift tax out of pocket is if you use up your entire lifetime exemption. That’s very rare, and only a small fraction of clients ever pay any gift tax.

Other gifting that would be excluded from gift taxes include;

Charitable Distributions from Your IRA

A qualified charitable distribution (QCD) allows individuals who are 70½ years old or older to donate up to $100,000 total to one or more charities directly from a taxable IRA instead of taking their required minimum distributions. As a result, donors may avoid being pushed into higher income tax brackets and prevent phase-outs of other tax deductions, though there are some other limitations so talk to one of our wealth advisors.

Giving Concentrated Positions vs Writing a Check

A concentrated position occurs when an investor owns shares of a stock (or another security type) that represent a large percentage of his or her overall portfolios. The investor’s wealth becomes concentrated in a single position.  Risks can begin to develop as these positions become dominate in the portfolio.

Clients can make a bigger impact by donating long-term appreciated securities, including stock, bonds, and mutual funds, directly to the charity instead of writing a check. Compared with donating cash, or selling your appreciated securities and contributing the after-tax proceeds, you may be able to automatically increase your gift and your tax deduction allowed by the IRS.   By donating stock that has appreciated for more than a year, you are actually giving 20 percent more than if you sold the stock and then made a cash donation.

So go ahead and donate a FANG* stock and if you still want to own that FANG then write a check to your brokerage account instead of the charity and buy more shares at a new cost basis.

Establish a Donor Advised Fund 

A donor-advised fund (DAF) is like a charitable investment account, for the sole purpose of supporting charitable organizations you care about. DAFs are the fastest-growing charitable giving vehicle in the United States because they are one of the easiest and most tax-advantaged ways to give to charity.

When thinking of the biggest charities what names come to mind? The United Way? The American Cancer Society? The Salvation Army? Well, the largest is called the Fidelity Charitable Gift Fund, which is also the largest donor-advised fund in the United States.

Sponsoring organization through Fidelity or Schwab (and many others) are the charities that hold and manages donors’ contributions — cash, stocks, bonds, real estate, even business ownership — for the purpose of making grants to other charities, once (or if) you the donor tells them to do so.

Opening a DAF is less expensive and requires less administrative overhead than establishing a private foundation.  Fidelity’s Donor Advised Fund has a 6 question quiz to see if a DAF is right for you.  In this Fidelity 2019 Giving Report link you can see that in 2018 alone there were over 200,000 donors granting over $5 billion to charity.  Your ACM wealth advisor can help you determine if a DAF makes sense for you based on your average annual charitable giving and tax circumstances.

Happy shopping.

*FANG is the acronym for four high-performing technology stocks in the market – Facebook, Amazon, Netflix and Google (now Alphabet, Inc.). The term was coined by CNBC’s Mad Money host Jim Cramer.

The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.


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