Broker Check

The Gift That Gives...In More Ways Than One

The Gift That Gives...In More Ways Than One

| December 21, 2021

It is that time of year - Christmas! Maybe it’s due to watching Scrooge or The Grinch for the umpteenth time, but it seems we are all inspired to give back during the holidays even in the smallest way.

Here are a few ideas to give to your favorite causes and have Uncle Sam help you do it:

Did you realize that you can give a gift and receive income on that gift for the rest of your life? That’s right! In fact, you can receive income… and it can continue for your children’s lifetimes. We work with one family that is very near and dear to us. Mom is widowed, so legacy and estate planning has been an ongoing priority for the past several years. Recently she said, “What about me? They won’t pay any taxes, but I am sick of writing those checks. What can we do for me?” Through careful planning we helped her design a $250,000 charitable gift that gave her an immediate tax deduction of $170,000 and avoided capital gains on over $100,000.  It didn’t take one penny of cash and she kissed her last quarterly tax payment goodbye. The total tax savings was approximately $78,000. And, by the way, this gift will create income for her and her three children for the rest of their lives. Not bad for a last minute, end of year tax deduction.

Are you getting to deduct your charitable deductions with the current standard deduction being so large? If not, consider bundling two years into one. Advance everything you can. This can be done with something as simple as charging a gift to a credit card and waiting to pay it off until January, or by taking out a new credit card with a temporary 0% interest rate and paying it off over the next 12 or 18 months. Let’s say you usually give $5,000 a year to a particular cause, but spread it out over the year. Go ahead and make your gift this month with one of these strategies and get double the deduction. After all, if you are in that top tax bracket, an extra $5,000 in gifting could save you $2,170 in federal income taxes alone.

Another similar strategy uses a little tool known as a “Donor Advised Fund. “ You can donate all kinds of things - not just cash - to these funds and accomplish the same thing we just talked about in most cases. You can also donate any amount. With a Donor Advised Fund you also have the liberty to gift to any non-profit when you want to make the gift rather than all at once. This is also a great way to help the little ones in your family learn where the joy of giving comes from. Make them the trustees who help choose where the gifts go and in what amount. They can even help with the investments. And who knows? This tradition may become a legacy long after you are gone.

Lastly, don’t forget about the benefits of using IRA money or life insurance for charitable gifts. Sending you required minimum distribution - or even more (up to $100,000) - directly to a charity allows you to avoid reporting this taxable distribution as income and therefore avoiding the taxes. Additionally, doing it this way rather than taking the distribution in cash and then giving the gift may give you a deduction even if you don’t itemize your deductions. It may even lower the amount of your Social Security that is taxable, providing an even larger tax benefit. And don’t forget about old life insurance policies you may not need in your current financial plan. Rather than cashing them in, consider gifting them to your church or favorite cause. You get an immediate tax deduction and can create a family legacy all in one piece of paper.

Feeling gratitude and not expressing it is like wrapping a present and not giving it—William Arthur Ward. We are beyond blessed to live in a country that we even need to talk about this issue today. Have cheer, give and receive! God bless you and Merry Christmas!