The end of the year is a perfect time to evaluate your finances and determine whether there are gifts that can be made to assist with tax planning.
Three simple gifts can be made that are exempt from gift taxes. First, gifts that are not more than the annual exclusion for the calendar year. As of 2018, you can give up to $15,000 to as many individuals as you desire during the year. If married, you can combine your giving with your spouse and gift up to $30,000 annually. Second, you can give an unlimited amount for medical and tuition expenses, as long as the payment is given directly to the service provider. Third, you can gift an unlimited amount to a qualified U.S. charitable organization. Consult with your tax advisor on the deductibility of these payments to charities for income tax purposes.
Many charities reach out at the end of the year for donations. One way you can support is by directly transferring funds from your IRA to a charity through qualified charitable distributions (QCDs), naming an organization as a beneficiary of your IRA. For the donation to qualify as a QCD, you must be 70 ½ or older, and the distribution from the IRA must be one that would have otherwise been taxable to you. The charity will receive the full value of the IRA's annual distribution (Up to $100,000 of QCDs can be excluded each year from your gross income per person), and your taxable estate will be reduced by the value of the IRA transferred to the charity. The main restriction on this method is that the annual contribution limit for IRAs is $5,500 ($6,500 if you're age 50 or older), and, of course, income limits apply.
If you desire to make a gift, but lack sufficient current assets, you can transfer the ownership of a life insurance policy and may receive an income tax deduction. If you only name a charity as a beneficiary on a life insurance policy, you do not receive an income tax deduction, since you can always surrender the policy.
Another gift vehicle, for those with appreciated securities and real estate with low-cost basis, is to establish a Charitable Remainder Trust. The donor establishes the trust for a specified term and names a third party, such as a bank, as the trustee. The donor receives a charitable deduction at funding for the value of the remainder interest in the trust. The donor, and/or other beneficiaries, receive an income stream for the term selected. Capital gains realized on the sale of assets in the trust are deferred until distributed to the beneficiary. At the end of the term, the remaining assets are paid to the charity.
Contact us for assistance in implementing your plan and to learn more about how you can take advantage of gifting and other financial and wealth management strategies.