Last week, we talked about the gift of giving during the holiday season. The article was all about teaching financial literacy to your children and grandchildren, as well as using this time with family to discuss important estate planning issues. [Click here to read.] Today, we want to continue this message with a deeper focus on charitable giving and tax-free gifting strategies for the holidays.
As you are talking with your children, grandchildren and other close family members about financial issues, the topic of charitable giving should be an important concept to cover. Teach them why it is a good thing to do. It can be beneficial on a personal and emotional level. You are donating money or other financial assets to charitable organizations. You’ve been blessed with some level of success and wealth, so it always feels good to share with those who are in need. Whether you are giving to your church or your favorite charities and nonprofit organizations, you can do a lot of good with anything you are willing and able to give.
Of course, the other primary benefit of charitable giving comes when it’s time to do your taxes. Giving money to qualified nonprofit organizations can reduce your taxable income. What you donate is tax-deductible. The more you give, the more you may be able to write off come tax season. You could drop yourself into a lower tax bracket or simply reduce your tax liabilities through charitable giving.
Charitable giving is great on several levels. It feels good to do and you will see some excellent tax benefits with the right gifting strategies.
Another smart gifting strategy can happen within your family. You could give cash or qualified financial assets to your children, grandchildren or anyone you want. This can be done completely tax free if you stay under the annual giving limits. This may be something to consider before the year comes to an end, and it may be part of your overall estate plan. Why wait until you die to share some of your wealth with your heirs, especially if it can benefit them now?
The annual gift exclusion amount for 2023 is $17,000 per individual recipient (or $34,000 per married couple). This means you can gift up to these amounts any given year per the current exemption rules. The recipient will not have to pay any taxes on the cash gift, and you will be able to deduct the gift amount from your taxable income for the year.
There are lifetime tax exemption limits for this kind of gifting before or after death. For 2023, the total amount you can give before taxes are incurred is $12.92 million ($25.84 million per married couple). These lifetime exemption amounts are set to be cut in half by 2025 unless legislation is changed before then. This makes the next two years especially beneficial if planning a family gifting strategy.
The holidays offer the perfect opportunity to give these gifts. You can help family members and benefit your own tax situation.
It’s important to make sure you are doing things right when it comes to charitable giving and tax-exempted gifting within your family. For help with all your financial planning and tax strategy needs, contact Illumination Wealth today and speak with one of our experienced advisors.