'Tis the Season for Gifting

‘Tis the Season

Following the official closure of the 2021 Tax Season (October 17th), we quickly move into the “Most Wonderful Time of the Year”.  We hope that this Holiday season is a more cheerful and happier one.  Before your schedules become booked with festivities, travel, shopping, and ringing in the New Year; consider these gifting options to make your 2023 even merrier:

 What is a Gift? Gifts are personal and sometimes even subjective, but not according to our friends at the Internal Revenue Service (IRS)! 

Before providing some potential gift ideas for those on your ‘nice’ list, lets clarify what gifts are.  The IRS defines gifts as:

Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return”. 

Annual Gifting – You may gift up to $16,000 or $32,000 as a married couple (filing jointly) in 2022, to any number of individuals you choose.  Any gift above that exclusion may be taxed at 40% to the donor - ouch!  Best to stretch it over a couple of years and/or exercise the lifetime exclusion (more information provided below) for larger gifts. 

  • Gift up to $164,000 annually to spouses who are non-U.S. Citizens.  Of note, generally there is no marital deduction granted for estate purpose.  

  • Gifts to spouses who are also U.S. Citizens, are not subject to the annual limits, so go ahead and make diamonds (ethically sourced of course) a girl’s best friend!

College Savings 529 Plans – Use the annual exclusion to fund any 529 plan.

  •   Pay for qualified college education or

  • Pay for K-12 tuition expenses up to $10,000 a year

    > If you wish to contribute above the exclusion, you are allowed to front-load up to 5 years ($16,000 x 5 = $80,000) into any account but must wait another 5-years to contribute.  Married couples can gift a total of $160,000.

Direct Medical or Tuition Expenses – Any payments made on behalf of someone else directly to a medical provider or educational institution are not counted toward the annual or lifetime gifts. 

  • Eligible medical expenses are those that would normally qualify as deductible. 

  • Tuition, current or pre-paid, are options to utilize this direct payment method as well.  

Charitable – For causes near and dear to your heart, consider gifting cash up to 60% of your Adjusted Gross Income (AGI) and up to 30% of AGI for non-cash and real assets owned greater than one-year, including stock.  Not sure if the charity qualifies?   The IRS provides a helpful resource

  • An appraisal may be required for real assets with a fair market value of over $5,000.

    > Consult with your tax professional and potential charity/charities prior to making a donation.

  • Appreciated stock is generally a favorable gift, as the tax deduction (for itemized returns) is based on the fair market value, not the purchase price. 

  • If you reached age 70 ½ in 2022, you are allowed to directly gift up to $100,000 annually from your IRA to a charity via a Qualified Charitable Distribution.

    > This gift is not reflected in your income and reduces your future Required Minimum Distributions (RMDs) when you reach age 72.

  • Charitable gifts in excess of AGI limits can be carried forward for up to 5 years. 

Lifetime Gifting – Any gift above the annual $16,000 (or $32,000 if gifting jointly) exclusion, can be captured on Form 709 and applied towards the current* allowable $12.06 Million lifetime gift and estate tax exclusion to remain non-taxable.  Married couples who are both U.S. Citizens have a combined $24.12 Million lifetime exclusion.  *This exclusion is anticipated to decrease after 2025. 

This year has been unique as both stocks and bonds have both been negatively impacted by inflation and/or rising interest rates.  Not all is negative, as you may wish to take some actions for lower valued assets by rolling over a portion of your IRA to a Roth IRA account – talk to your tax professional to determine if this is appropriate for you. 

The Countdown is On! – Don’t wait for the ball to drop before you consider gifting this year.  Please confirm any gifting or tax planning instructions with Allen Trust Company no later than December 1st.  We have a team here to assist in navigating your financial pursuits and answer your questions. 

Happy Gifting!

Krystal C. Lee, MBA, CFP®