As the year comes to a close, you may be thinking of making financial gifts in addition to trying to buy a relevant gift for the picky tween in your life. Here are a few guidelines for both charitable gifts and gifts to friends and family.
I. Charitable Gifts
- With the passage of the Tax Cuts and Jobs Act of 2017, the standard deduction is higher than it was previously ($12,000 for single filers and $24,000 for married filing jointly). If your charitable gifts plus other itemized deductions do not surpass the threshold, there isn’t necessarily an incremental tax benefit for making the gifts. You might consider a strategy called “bunching,” in which you can make use of a donor advised fund to make several years’ worth of charitable gifts. You would have increased itemized deductions in the current year and in subsequent years, you would take the standard deduction.
- Fidelity Charitable has posted a short video explaining the bunching concept. See a previous post about the benefits of a donor advised fund here.
- If you have started taking required minimum distributions from your IRA, you can make a “qualified charitable distribution,” and the amount is excluded from your taxable income. The check must be made payable to the charity and deposited before Dec. 31st. You are responsible for keeping records of the gifts and reporting them to your accountant.
- When making charitable gifts, it may make sense to give a gift of appreciated securities rather than cash to take advantage of both the charitable deduction and avoiding capital gains tax if you were to sell.
II. Gifts to Family or Friends
- Gifts of securities carry the giver’s cost basis, so cash typically makes a better gift to an individual.
- In 2019, a person can give another person $15,000 and remain under the annual gift exclusion limit. A couple can also elect to “split gifts”. For example, a grandmother and grandfather could give up to $30,000 to each of their three grandchildren. The money could also go into a tax-deferred college savings account (529 plan) or into a custodial account (under the Uniform Transfer to Minors Act, or UTMA).
- If you have made a loan to an individual, you can also forgive a portion of the debt each year up to the amount of the annual exclusion limits.
III. Other Reminders
- Gift transfers and IRA qualified charitable distributions often require paperwork, especially if they involve transferring securities. Try to initiate gifts before Christmas to give yourself and your advisor a buffer.
- The ideas given here are general guidelines and are intended to inform you of the different options available to maximize year-end gifts. Please consult your tax and financial advisors before making any gifts.
Investment management is offered through Porter White Investment Advisors, Inc., SEC-registered investment advisor.
This document is intended to raise issues for consideration by friends and clients. A number of simplifying assumptions have been made and details omitted for purposes of analysis. Consequently, readers are encouraged to seek competent tax counsel and not rely solely on any of the statements made herein.
Any advice concerning U.S. federal tax issues contained in this communication is not intended or written to be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or tax-related matter addressed herein.