by Austin Waugh • 5 min read
The Christmas season is upon us, a time that prompts us to slow down, reflect and give thanks for the past year’s blessings. Compared to most years, however, we may find it difficult to be thankful at the end of 2022. Decades-high inflation, skyrocketing interest rates, and downward-trending financial markets have blended to form a witches’ brew that makes the Macbethian elixir seem like a mild sedative in comparison.
While it’s not an “eye of newt” or “toe of frog,” the less-than-stellar market returns of 2022 are not an easy pill to swallow. How can we be thankful in such dismal times?
The answer, as with many things in life, is to step back and consider the broader context. If we zoom out from the current valley we find ourselves in, we see that the last two decades have been extremely positive. The S&P 500 returned 335% from November 1, 2002 through November 1, 2022. That equates to roughly a 7.6% compound annual return over the same period. If you are a long-term investor who has held exchange-traded funds or index funds that invest in the S&P 500, you could be sitting on substantial capital gains from these past two decades. The same could be said for long-term investors in single stocks that tend to track along with the S&P 500. Now that’s something for which we can be thankful!
One caveat remains, however. There will come a day when Uncle Sam demands his pound of flesh, even from the prudent long-term investor. With capital gains rates of 23.8% for individuals in the highest income tax brackets (20% capital gains rate, plus 3.8% net investment income tax rate), there’s a hefty price to pay for long-run diligence. But opportunities still exist to maximize the impact of your philanthropy. One of the most effective ways is by giving appreciated publicly traded stock, ETFs or mutual funds to your favorite charity. Giving stock directly in lieu of cash helps amplify your gift by generating an income tax deduction and avoiding capital gains tax on the appreciated stock.
An additional strategy you can use with appreciated publicly traded stock, as well as other property, is the creation of a charitable remainder trust (CRT). If you were to give your appreciated stock or other property to a CRT, you could receive the same benefits – namely an income tax deduction, avoiding capital gains tax, as well as receiving income for the term of the trust (up to 20 years) or the life of at least one beneficiary – and then provide a future legacy to your favorite qualified charity or private foundation.
First Liberty’s successful and ongoing efforts to protect religious freedom for all Americans take on a deeply profound significance when you envision the world where your children and grandchildren will be living—and the greater legacy you want to leave for them.
As you begin thinking about your year-end giving opportunities, we encourage you to contact your attorney, tax and financial advisors and explore gifts of appreciated publicly traded stock or the creation of a CRT. You can find additional information at https://firstlibertylegacy.org/. If we can provide you with any additional information about giving strategies, please contact us. We would be happy to assist you and answer any questions you may have.
Macbeth was a tragedy, but we don’t have to suffer the ‘tragedy’ of capital gains taxes if we plan accordingly.
Tax laws are complex and are subject to change. This information is based upon current tax rules in effect at the time this was written. First Liberty Institute does not provide tax or legal advice. Individuals should always check with their tax or legal advisor before engaging in any transaction involving tax-advantaged planning strategies or investments. Comments herein are for educational purposes only.