Year-End Financial Planning – the Art of Gifting (Part 2)

Categories : Financial, News
November 9, 2023

Support for American generosity is embedded in the U.S. Tax Code. Why, then, does the IRS make gifting rules so complex and difficult to follow? The rhetorical nature of that question does nothing to lessen the value of carefully following ever-changing terms and conditions for improving a taxpayer’s cash flow through gift-giving.

In general, tax breaks are available for donations to qualified charities. IRS maintains a database of Qualified Charities on the website. Search for Tax Exempt Organizations to verify the deductibility of an intended gift.

Gifts can be lumped into a few categories, with differing tax consequences for each type.

  • No Tax Consequences. Gifts to family or friends do not produce monetary benefits to the donor. Every real person, not an entity such as a trust or corporation, can give any other real person $17,000 in 2023. The transaction is non-taxable, and doesn’t even have to be reported on either tax return. Most estimates are that the amount will be inflation-adjusted to $18,000 for 2024. Keep good records, just to be certain.
  • Later Tax Consequences. Wealthy Americans may have their estates subjected to Estate Tax after death, and during life may take steps to minimize or eliminate that possibility. Lifetime gifting to relatives can keep the estate value under the taxation limit, but rules must be followed. Above the current $17,000 annual limit for non-taxable gifts, the donor must file a Gift Tax Return when the limits are exceeded. There is a lifetime upper limit, and IRS will keep track.
  • Immediate Tax Consequences. As mentioned earlier, gifts to Qualified Charities receive an immediate income tax deduction for the donor, but even these are limited to a percentage of the donor’s Taxable Income. Qualified donations in excess of the allowable deduction may be carried over to subsequent years.

Based on taxation rules as illustrated above, it is apparent that our Federal Government strongly encourages individual generosity. Based on the track record of Americans, it seems that we are only too pleased to respond positively.

In coming Blogs, we will cover many more topics of interest for investors.

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