A Season of Giving

A Season of Giving

By: Vanessa McElwrath, CFP®, Wealth Management Partner

As we approach the holidays and the end of the year, many people plan to make gifts during this season of personal giving.  Year-end gifts also offer an opportunity to take advantage of tax deductions and encourage charitable planning for the year ahead. Whatever inspires your generosity this month, there are many gifting strategies that may be helpful for you. Here are some tips to make the most out of this season of giving.

Personal Gifts

Instead of giving family members more toys, electronics, or clothes, think creatively about the types of gifts you make. You may consider making a more meaning or impactful gift to someone special in your life. For example, a gift that could go a long way could be a contribution to a child’s or grandchild’s college savings 529 account. These types of accounts are great funding vehicles for higher education- the earnings and growth in the accounts are tax-free if the money goes towards qualified education expenses such as tuition, books, room & board, and required supplies.

You may also pay a child’s or grandchild’s tuition or medical expenses. If you pay the tuition directly to the institution or the medical expense directly to the medical provider, it is not counted against the annual $15,000 per person gift limit. The annual federal gift tax exclusion allows you to give away up to $15,000 in 2019 to as many people as you wish without those gifts counting against your $11.4M lifetime exemption. Just make sure that you pay the institution or provider directly, not the student or patient in order be exempt from the $15,000 limit. Unlimited gifts for education and medical expenses can be a particularly useful gifting strategy for those who find themselves with sizeable estates and are looking for opportunities to maximize tax-exempt gifts.

Charitable Gifts

The holiday season is a time when many of us make gifts to charities and nonprofits that we are passionate about. That staid, from a tax perspective, it is becoming harder to take advantage of these charitable gifts. Back in 2017, the Tax Cuts and Jobs Act was passed increasing the standard deduction, and as a result, fewer people are itemizing deductions and claiming charitable contributions. However, there are still strategies to maximize the tax savings resulting from these charitable gifts.

For example, if you plan to make an outright gift of cash to a tax-qualified charity, consider gifting any highly appreciated stock, mutual funds, or other investments with large embedded gains instead. When you donate the shares, you avoid paying the capital gains tax and the full market value of the shares becomes deductible- the best of both worlds.

If you are at least age 70 ½ and required to take Required Minimum Distributions from your IRA(s), you can elect a Qualified Charitable Distribution or QCD.  When you make a QCD, you donate directly from your IRA account to the charity and the distribution is treated as nontaxable and simultaneously counts towards your annual distribution requirements. Your adjusted gross income will be lower which might yield other tax benefits (possibly lower taxation of your Social Security benefits or maybe prevent you from moving into higher Medicare tax tiers).

Make it a Family Affair

Encouraging kids to support causes they care about can be an excellent personal as well as financial lesson. It introduces them to the importance of philanthropy and gets the whole family involved in giving this season. Start by talking to your kids about the causes you support and why. Let them research and choose an organization to support and collectively decide on a dollar amount each family member can give.

Or as alternative, you could also find an opportunity to volunteer as a family. It can be a wonderful opportunity for you to work together as a family and share in an experience that can be as enriching for all of you as it is helpful to those in need.

At ML&R Wealth Management, we have several advisors that can help. Contact us to learn more.

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