Charitable Gifts of S Corporation Stock
FREE LAW REVIEW ARTICLE DOWNLOADS Google search: SSRN Hoyt charity S Corporation #1 - Charitable Gifts by S Corporations: Opportunities and Challenges - ACTEC Law Journal, Vol. 36, pp. 477-515, Fall 2010
http://ssrn.com/abstract=1926717 #2 - Charitable Gifts of S Corporation Stock - Two Worlds of Law Collide - ACTEC Law Journal, Vol. 36, pp. 693-768, Spring 2011
http://ssrn.com/abstract=1926693
INCOME TAX OPPORTUNITIES, TRAPS, AND SOLUTIONS CHARITABLE GIFTS BY UPPER-INCOME DONORS, ESPECIALLY BUSINESS OWNERS
Philadelphia Estate Planning Council Philadelphia Art Museum - May 7, 2015 CHRISTOPHER R. HOYT University of Missouri - Kansas City School of Law
INCOME TAX RATES Income Level
INVEST -MENT
LTCG & Divid
AGI < $200k/$250k
28%
15%
AGI > $200k/$250k
33%
15%
33% rate when taxable income > $186,350 -- single > $226,850 – married filing jointly
WEALTHY PAY SOME TAXES ON “AGI”
ADJUSTED GROSS INCOME(“AGI”) Minus: Greater of -- Standard Deduction ($6,100) or -- Itemized Deductions (Mortgage interest; charitable contributions; state & local taxes) Minus: Personal Exemption & Dependents ($3,900 each)
= TAXABLE INCOME
INCOME TAX RATES Income Level
INVEST -MENT
LTCG
28%
15%
& Divid
AGI < $200k/$250k
AGI > $200k/$250k
33%
15%
plus health care surtax
3.8%
3.8%
36.8%
18.8%
3.8% Net Investment Income Tax MAGI > $200,000 ($250,000 joint returns)
How many people are affected? 2012 Tax Returns with AGI over $200,000:
3.6% of all returns
0.9% of single returns 8.3% of married joint returns
85% of the returns with over $200,000* of AGI were married joint
3.8% Net Investment Income Tax MAGI > $200,000 ($250,000 joint returns)
How many people are affected? Successful small business owners: •Business
profits are reported on the Form 1040 (Schedule “C” or “E” or “F”) •Although no 3.8% surtax on the profit if the owner works at the business, it means owner’s AGI is pushed higher than if the business was a C Corp
3.8% Net Investment Income Tax MAGI > $200,000 ($250,000 joint returns)
How many people are affected? Successful small business owners: In 2012: 28% of all returns that reported positive partnership or S Corp income had AGI>$200,000
3.8% Net Investment Income Tax MAGI > $200,000 ($250,000 joint returns)
3.8% surtax on the lesser of: Net
Investment Income
or MAGI
over $200,000 ($250,000 joint) ( $200k/$250k not indexed for inflation )
Trusts and estates pay 3.8% at $12,300 !!
INCOME TAX RATES INVEST -MENT
Income Level
LTCG & Divid
AGI < $200k/$250k
28%
15%
AGI > $200k/$250k
33%
15%
AGI >
33%
15%
$250k/$300k
-- 3% phase-out itemized deductions -- Phase-out personal exemptions
PHASEOUTS AGI > $250,000 ($300,000 joint returns) [2015: AGI > $258,000 ($310,000 joint)]
3% Phase-out Itemized Deductions -- disguised 1% tax rate hike (3% x 33% rate) Personal and Dependent Exemptions -- $4,000 apiece for self & each dependent -- lose 2% for every $2,500 income increase -- 100% eliminated AGI > $380k ($432k jnt) (Phase-out $258k--$380k ( $310k-$432k jnt))
INCOME TAX RATES Income Level
INVEST -MENT
LTCG & Divid
28% AGI > $250k/$300k 33%
15% 15%
plus 3% phase-out 1% plus health care surtax 3.8%
1% 3.8%
37.8%
19.8%
AGI < $200k/$250k
[plus personal exemption phase-out means extra tax until AGI $380,000 ($432,000 jnt)]
INCOME TAX RATES Income Level
INVEST -MENT
LTCG & Divid
Taxb>$400/$450
28% 39.6%
15% 20%
plus 3% phase-out plus health care surtax
1% 3.8%
1% 3.8%
AGI < $200k/$250k
With $12,000+ income, 44.4%
Trusts & Estates >> 43.4%
24.8% 23.8%
GENERAL CHARITABLE TAX-PLANNING RULES
#1 – Planning for gifts of appreciated “C Corp” stock #2 – What is different about a gift of an LLC interest, partnership interest, or S Corporation stock?
One way to reduce the 3.8% surtax : MAKE CHARITABLE GIFTS OF APPRECIATED STOCK #1 -DONOR’s DOUBLE-TAX SAVINGS Charitable Income Tax Deduction for the Full Appreciated Value of the Stock Never Pay Income Tax on the Growth of the Value of the Stock ( & avoid 3.8% surtax)
DOUBLE BENEFIT FROM GIFT OF APPRECIATED L.T.C.G. PROPERTY
http://ssrn.com/abstract=1926717 #2 - Charitable Gifts of S Corporation Stock - Two Worlds of Law Collide - ACTEC Law Journal, Vol. 36, pp. 693-768, Spring 2011
http://ssrn.com/abstract=1926693
INCOME TAX OPPORTUNITIES, TRAPS, AND SOLUTIONS CHARITABLE GIFTS BY UPPER-INCOME DONORS, ESPECIALLY BUSINESS OWNERS
Philadelphia Estate Planning Council Philadelphia Art Museum - May 7, 2015 CHRISTOPHER R. HOYT University of Missouri - Kansas City School of Law
INCOME TAX RATES Income Level
INVEST -MENT
LTCG & Divid
AGI < $200k/$250k
28%
15%
AGI > $200k/$250k
33%
15%
33% rate when taxable income > $186,350 -- single > $226,850 – married filing jointly
WEALTHY PAY SOME TAXES ON “AGI”
ADJUSTED GROSS INCOME(“AGI”) Minus: Greater of -- Standard Deduction ($6,100) or -- Itemized Deductions (Mortgage interest; charitable contributions; state & local taxes) Minus: Personal Exemption & Dependents ($3,900 each)
= TAXABLE INCOME
INCOME TAX RATES Income Level
INVEST -MENT
LTCG
28%
15%
& Divid
AGI < $200k/$250k
AGI > $200k/$250k
33%
15%
plus health care surtax
3.8%
3.8%
36.8%
18.8%
3.8% Net Investment Income Tax MAGI > $200,000 ($250,000 joint returns)
How many people are affected? 2012 Tax Returns with AGI over $200,000:
3.6% of all returns
0.9% of single returns 8.3% of married joint returns
85% of the returns with over $200,000* of AGI were married joint
3.8% Net Investment Income Tax MAGI > $200,000 ($250,000 joint returns)
How many people are affected? Successful small business owners: •Business
profits are reported on the Form 1040 (Schedule “C” or “E” or “F”) •Although no 3.8% surtax on the profit if the owner works at the business, it means owner’s AGI is pushed higher than if the business was a C Corp
3.8% Net Investment Income Tax MAGI > $200,000 ($250,000 joint returns)
How many people are affected? Successful small business owners: In 2012: 28% of all returns that reported positive partnership or S Corp income had AGI>$200,000
3.8% Net Investment Income Tax MAGI > $200,000 ($250,000 joint returns)
3.8% surtax on the lesser of: Net
Investment Income
or MAGI
over $200,000 ($250,000 joint) ( $200k/$250k not indexed for inflation )
Trusts and estates pay 3.8% at $12,300 !!
INCOME TAX RATES INVEST -MENT
Income Level
LTCG & Divid
AGI < $200k/$250k
28%
15%
AGI > $200k/$250k
33%
15%
AGI >
33%
15%
$250k/$300k
-- 3% phase-out itemized deductions -- Phase-out personal exemptions
PHASEOUTS AGI > $250,000 ($300,000 joint returns) [2015: AGI > $258,000 ($310,000 joint)]
3% Phase-out Itemized Deductions -- disguised 1% tax rate hike (3% x 33% rate) Personal and Dependent Exemptions -- $4,000 apiece for self & each dependent -- lose 2% for every $2,500 income increase -- 100% eliminated AGI > $380k ($432k jnt) (Phase-out $258k--$380k ( $310k-$432k jnt))
INCOME TAX RATES Income Level
INVEST -MENT
LTCG & Divid
28% AGI > $250k/$300k 33%
15% 15%
plus 3% phase-out 1% plus health care surtax 3.8%
1% 3.8%
37.8%
19.8%
AGI < $200k/$250k
[plus personal exemption phase-out means extra tax until AGI $380,000 ($432,000 jnt)]
INCOME TAX RATES Income Level
INVEST -MENT
LTCG & Divid
Taxb>$400/$450
28% 39.6%
15% 20%
plus 3% phase-out plus health care surtax
1% 3.8%
1% 3.8%
AGI < $200k/$250k
With $12,000+ income, 44.4%
Trusts & Estates >> 43.4%
24.8% 23.8%
GENERAL CHARITABLE TAX-PLANNING RULES
#1 – Planning for gifts of appreciated “C Corp” stock #2 – What is different about a gift of an LLC interest, partnership interest, or S Corporation stock?
One way to reduce the 3.8% surtax : MAKE CHARITABLE GIFTS OF APPRECIATED STOCK #1 -DONOR’s DOUBLE-TAX SAVINGS Charitable Income Tax Deduction for the Full Appreciated Value of the Stock Never Pay Income Tax on the Growth of the Value of the Stock ( & avoid 3.8% surtax)
DOUBLE BENEFIT FROM GIFT OF APPRECIATED L.T.C.G. PROPERTY
