End-of-Year Giving: Proactively Plan for an Advantageous Tax Situation

When it comes to planning for end-of-year taxes, it’s wise to consider your intentions for giving. Whether you intend to make charitable donations or individual gifts, acting strategically can help you take advantage of various tax benefits, while ensuring that the maximum amount passes to the individuals or organizations that mean the most to you. If you are planning on making individual and/or charitable gifts this year, consider the following tactics and their tax advantages.

Individual Gifting

  • By gifting appreciated assets you may be able to take advantage of various tax benefits. Therefore, if you are planning to gift a meaningful amount, it may be more beneficial tax-wise to gift appreciated stock rather than cash or assets that are not expected to appreciate as rapidly. Gifting appreciated stock may allow you to take the full deduction and avoid paying capital gains – saving you money, reducing future tax liability, and potentially impacting costs with Medicare as those assets won’t be included in your adjusted gross income.
  • If your state participates in 529 plans, these can be a great way to contribute to a child’s future education. Depending on your financial situation, many people are eligible to make contributions to a child's 529 plan without incurring gift taxes. Gifts of up to $15,000 per beneficiary typically qualify for the annual gift tax exclusion. Friends and family who want to make a larger tax-free gift can use five-year gift tax averaging, meaning you may be able to gift up to five years worth of contributions at one time.
    Girl studying at school looking very happy
  • Take note of the gift tax exclusion amount when it comes to gifting. In 2022, for example, the limit for a married couple filing jointly is $32,000 per recipient. That means that you could potentially gift each of your children up to $32,000 in December, and another $32,000 in January without any income, gift, or estate tax consequences. And if you want to also gift your child’s spouse, the couple can receive up to $128,000 over a short period of time.
  • Generally, gifts made directly to a health care or education service provider are not taxable. If you would like to help cover the tuition or health care expenses of another person, you may consider making payments directly to the provider of the service.

Charitable Giving

  • There is no gift tax limit or tax consequences for outright gifts to qualified charities. The donor may be able to fully deduct the gift amount in their taxes. It is important to note that depending on the type or charity and other factors, an income tax deduction may be limited to a percentage of an individual’s adjusted gross income. 
  • Through donor-advised funds, individuals can take income tax deductions on contributions of up to 60% of their adjusted gross income. The donor contributes to a charitable fund and is given flexibility in recommending and suggesting how the funds are distributed to various charities.
    Donate Button on Modern Computer Keyboard.
  • A Qualified Charitable Distribution (QCD) is a tax-free transfer that can be made from your IRA assets directly to a qualifying charity. Donating to a charity through a QCD can be done systematically or as a one time distribution. Clients seeking to reduce their taxable adjusted gross income have found this to be a compelling option as part of their charitable giving strategy. 

When thinking about your year-end giving, it’s wise to consider strategies you may take to reduce your tax liability while maximizing your gifts – be it to individuals or charities. Whatever your intentions are for giving, proactively considering the various tax benefits available to you will help you end the year in a more favorable position.

To discuss your financial goals and strategy, please contact us.