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Meet the Street: Year-End Tax Tips

Tax and estate lawyer Robert Lawrence says to complete annual exclusion gifts and review projected tax returns.
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With a new year just around the corner, it's important to make sure all your deductions and contributions are squared away so they can count toward April's tax return.

Here to remind us of some of the moves you should consider making is Robert Lawrence, a tax and estate lawyer with New York law firm Cadwalader, Wickersham & Taft, one of the oldest law firms in the country. Lawrence is the chairman of the private-client department at Cadwalader, advising high net-worth individuals and families.

Robert C. Lawrence,
Cadwalader, Wickersham & Taft

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TSC: What are some tax moves people should think about before the end of the year?

Lawrence: Make your annual exclusion gifts before the year's end. You can give up to $10,000 each year free of gift tax to any number of individuals. If you are married, you can give up to $20,000. But be sure that the check cashes before the end of the year.

In addition to the annual exclusion, you can give up to $675,000 away over a lifetime without any gift-tax consequences. This amount will increase in 2002. If you are married, take advantage of your spouse's unified credit. And be sure to select assets that will appreciate in value, such as marketable securities, real estate, stock options or privately held stock. Any appreciation in the value of the property given away will reward your beneficiaries without any further gift tax.

TSC: How much of a benefit do taxpayers get from making charitabledonations?

Lawrence: If cash is donated, a charitable deduction is allowed for the full cash value. If appreciated marketable securities are donated, the charitable deduction is equal to the full fair market value of the securities if the taxpayer has held the stock for more than one year.

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However, the charitable deduction for cash gifts is limited to 50% of adjusted gross income AGI for gifts to public charities, and 30% of AGI if the recipient is a private foundation.

In the case of gifts of appreciated marketable securities, the limitation is generally 30% of AGI for gifts to public charities and 20% of AGI for gifts to private foundations. A donor may carry over any excess deductions for up to five years.

TSC: How can people motivate themselves to get into thecharitable frame of mind?


Even if your primary motivation is not charitable, you should consider making gifts of appreciated marketable securities held for more than one year to charity because of two income tax advantages.

One, the donor gets a deduction equal to the fair market value of the stock, and two, no capital gains tax is incurred on the transfer. For example, if the stock is worth $100,000 and the cost basis is $10,000, the donor can save $25,200 in capital gains tax (assuming a combined federal and state capital gains tax of 28%) and $39,000 in income tax (assuming a combined federal and state income tax of 39%) by contributing the stock to charity. This thereby reduces the out-of-pocket cost of the gift to just $35,800.

TSC: Anything else taxpayers should try to do before Jan. 1?


I'd review projected tax returns now to avoid surprises later. These surprises can include having to pay underpayment penalties because your federal income tax-withholding rate is too low, or realizing you waited too long to recharacterize your Roth IRA contributions and conversions. I'd also avoid purchasing mutual fund shares until after the mutual fund makes its year-end dividend contribution.