Gifting Ideas for the Holiday Season

Tis the season for giving.  Fa La La La La La La La.

It never fails, as we enter into the holiday season, our office receives a noticeable increase in calls from clients with questions regarding the 'right' way to gift to a family member, friend or chosen charity. This week I would like to discuss several gifting ideas to keep in mind as you share some of your good fortune with family or charities. 

Family Gifting:

 Anyone can gift up to $13,000 dollars per year completely tax free to anyone that they would like - son, daughter, niece, nephew, daughter-in-law and even the paperboy. Not only do these gifts not have to be reported as income by the recipient, the gift giver is not required to report the gift transfer either. Astute married couples can each make a $13,000 dollar gift in the same year, doubling the joy to the tune of $26,000 dollars – a tax free transfer to their favored elf. If your child is married, double this gift again by giving the child-in-law a gift and families can really start spreading holiday cheer!  

While the above strategy has been well disseminated, many families are less familiar with the concept that medical or education tuition expenses can be paid in addition to the $13,000 dollar gifts.  These tuition gifts need to be paid directly to the school or medical facility; books, supplies and room and board do not qualify. What a nice gift this year from a grandparent. 

Charities:

For giving to charities, there are a few strategies that you want to keep in mind.  Consider donating appreciated stocks at full market value now which can avoid potential problematic cost basis issues. While the qualifying charity will enjoy the benefits of the gift without taxation, the gift will receive the tax benefits at full value, as long as certain IRS guidelines are met.  Property that has cost basis below current market values should be sold first, allowing the taxpayer the ability to take the tax loss and then gift to the charity.

Finally, consider a Qualified Charitable Deduction from your IRA.  This popular strategy, unlike many others that were extended under the 2010 tax act, is scheduled to expire in just a few short weeks - at the end of 2011. While many hope to see this provision extended next year, there is no guarantee that this will be offered again in the future. This allows you to make a direct donation, as long as you are at least age 70 and a half, from your IRA to your charity of choice. While no tax deduction for the donation is recognized on a tax return, your donation can be used to satisfy up to $100,000 dollars per IRA owner reducing potential taxation on required distributions that may otherwise not be needed.

Combining your charitable gifting with comprehensive financial planning can allow you the fulfillment of pleasure as you help those that you care about the most during this season of giving and at the same time, give you financial benefits if executed correctly.

Enjoy the season.   And seek out a qualified tax advisor to help you with your specific tax needs.