How to avoid taxes when giving
As we approach the holiday season, giving financial gifts is sure to be top of mind for many of you. In the eyes of the IRS, not all gifts are created equal.
Follow these guidelines to avoid taxes and to make the most of your financial gift:
1) Keep it under $18,000
When gifting to family (or any other person), you may give up to $18,000 in 2024 without any sort of IRS forms or reporting – this is called the “annual exclusion”, and the amount increases with inflation every 1-5 years.
This exclusion amount applies per giver, per recipient, per year.
2) Gift appreciated assets
If you have an asset – usually a stock – that has increased in value, you may be moved to sell it and give the proceeds to your church or favorite charity. However, you will have to pay taxes on the gain.
Instead, you can give the stock directly to the church/charity who, as a tax-exempt organization, can sell it without paying taxes. The best part? You still get an itemized deduction for the fair market value of the donated asset.
Book a free consultation with 402 Financial.
Don’t know how to donate stock? Don’t worry! Your church or favorite charity will be able to walk you through the process.
You can also give appreciated assets to your adult children, though they would be required to pay taxes on a sale. However, if your child is in a lower tax bracket, they may be able to pay less than you – maybe even 0%. Keep in mind the annual exclusion limits discussed above.
3) Give tax-free from your IRA
If you are over 70 ½ years old, you can donate to a church or charity directly from your IRA – this is known as a Qualified Charitable Distribution (QCD). When you do this, the amount you donate will not be included in your taxable income.
To initiate a QCD, contact your financial advisor or custodian (the company who holds your IRA).
4) Don’t discount the value of your time
Financial gifts are a great way to deliver value to a cause you care about, but if you are retired or an empty nester, you may have time to give as well!
Contact your church or favorite charity to find volunteer opportunities. The holidays are a great time to consider how fortunate many of us are, and to give just a little back to those who aren’t.
We love working with generous people, and one of the values we provide our clients is helping them give as much as possible while paying as little taxes as possible – legally, of course.
If you have questions about giving and you want a straight answer, use our Contact page to send us a message. There is no cost to you and no obligation to work with us.
