The holiday season is a time for giving, and for those who wish to share their wealth, there are financially efficient strategies that help you give sensibly. Here are some options that can help with gifting wealth or assets for the holidays, while keeping tax implications in mind.
- Annual Gift Exclusion for Gifting Wealth
One of the simplest and most direct ways to share wealth is through the IRS annual gift tax exclusion. For 2024, the IRS allows individuals to give up to $18,000 per recipient without triggering gift taxes or the need to file a gift tax return. Married couples can combine their exclusions to gift $36,000 per recipient.
The annual gift exclusion is also a smart way to minimize estate taxes because you can take out up to the gift exclusion limit every year, which cuts on your tax liability.
- 529 College Savings Plan Contributions
For those looking to support a loved one’s education, contributing to a 529 college savings plan is another tax-efficient option. While contributions are not federally tax-deductible, the earnings in these accounts grow tax-free, and withdrawals used for qualified educational expenses are also tax-free.
Additionally, contributions to a 529 plan are considered gifts for tax purposes. A unique feature of 529 plans is the ability to “front-load” five years’ worth of contributions. For example, an individual can contribute up to $90,000 in a single year without incurring gift taxes, provided no other gifts are made to that beneficiary over the following four years.
- Charitable Contributions
Donating to charitable organizations is another way to share wealth that may provide tax benefits. Contributions to qualified charities are generally tax-deductible for those who itemize deductions, and in some cases, donating appreciated assets like stocks may offer additional tax savings. By donating appreciated assets, the donor can avoid paying capital gains taxes on the appreciation, while the charity receives the full value of the asset.
Some may also consider setting up a donor-advised fund (DAF), which allows for an immediate tax deduction while giving the donor time to decide on specific charitable recipients.
- Gifting Wealth through Appreciated Stock
Gifting appreciated stock can be a tax-efficient way to transfer wealth to family members, particularly those in lower tax brackets. When appreciated stock is gifted, the recipient assumes the donor’s cost basis and holding period. If the recipient is in a lower income tax bracket, they may be able to sell the stock and pay less in capital gains taxes, or potentially none if they fall within the 0% capital gains bracket.
- Direct Payments for Medical or Educational Expenses
Another strategy for tax-free gifting is paying for someone’s medical or educational expenses directly. Payments made to medical providers or educational institutions on behalf of another individual do not count toward the annual gift exclusion and are not subject to gift taxes. This approach allows people to provide meaningful assistance without reducing their available gift tax exclusion.
- Gifting Wealth by Establishing a Family Trust
For those considering longer-term planning, creating a trust can offer a way to distribute wealth over time while providing potential tax advantages. Depending on how the trust is structured, it may allow assets to grow outside of the donor’s estate and, in some cases, offer tax benefits to both the grantor and the beneficiaries. A common vehicle for this is an irrevocable trust, which removes assets from the donor’s taxable estate.
Conclusion
During the season of giving, there are many tax-efficient ways to share wealth and uplift others. With a little planning, you can give to a charity, support a child’s education, help a loved one in need, or establish a legacy for your family, all while managing your tax burden.
Sources:
- [1] https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024
- [2] https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024
- [3] https://www.investopedia.com/terms/1/529plan.asp
- [4] https://www.savingforcollege.com/article/dont-worry-too-much-about-the-annual-gift-tax-limit
Amy Anderson joined the ILG Financial team in 2023 as the client relations coordinator. Her responsibilities include scheduling of appointments, annual check-up notifications, and annuity and required minimum distribution assistance. She is a graduate of Harding University with a degree in Computer Information Systems. Amy and her husband have two children and she enjoys reading, crocheting, music and spending time with her family.
Chase Lopez joined the ILG Financial team in 2020 as an advisor. Chase is a 2016 James Madison University graduate with a degree in management. Chase has been trained under the tutelage of Dave Lopez, who is not only the founder and managing member of ILG Financial, but also is Chase’s uncle and godfather. He also enjoys working alongside his cousin, Megan, who is Dave’s daughter. Chase, as a fiduciary, believes in putting his clients interests first, and building out plans for his clients where they can have a happy and fruitful retirement. He married his beautiful wife in February 2022 and both use most of their free time chasing around their little pup, Aurora.
Jessica Carson joined the ILG Financial team in 2018 as an agent. Jessica and her husband have four children, two dogs, 3 barn cats, 5 chickens, and three parakeets. She indeed loves her children and pets! When not at work, Jessica enjoys playing the piano and cello as well as traveling and spending time outside with her family, hiking, fishing, and boating.
Terri Center joined the ILG Financial team in 2019 as client services manager. She handles client records, application processing, and gathering information to provide a professional and friendly experience with all of our clients. Terri is a graduate of Oakland University. She is married and has two children. She enjoys hiking, family time, and puzzle challenging video games. She also likes to share her creativity in her canvas paintings and sewing projects.
Megan Jones joined the ILG Financial team in 2020 as marketing director. Megan and her husband live in Fredericksburg, VA with their German Short Haired Pointer, Gus. Megan is a graduate of Longwood University and holds a degree in communications. Megan is the oldest of Dave Lopez’s three children and not only enjoys working alongside her father, but also with her cousin, Chase, who joined the ILG Financial team in 2020 as an advisor. When not at work, Megan enjoys sitting on the back porch with family and friends enjoying food and music.