The holidays are here, which means in addition to all the festivities comes the more serious activity of planning your year-end gifts and charitable contributions.
At One Financial Services, we believe such strategies should be an important
component of your financial plan. They can help you manage your wealth efficiently, reduce your taxable income, provide financial support to loved ones, and donate to organizations you believe in.
Some end-of-year gifting strategies to consider:
Annual Gift Tax Exclusion
Within the annual exclusion limit, for federal tax year 2024, you can give up to $18,000 to an individual without incurring the gift tax. If you’re married, you can combine gifts with your spouse for a total of $36,000. This is a simple strategy for gifting to loved ones and reducing the size of your taxable estate. Pennsylvania residents do not pay a state gift tax on lifetime transfers. The exception is if the state can prove the gift was made “in contemplation of death” so the sooner the better.
Contributing to Education
Rather than a direct gift, you may contribute to a 529 college savings plan for a family member. 529 plans provide state tax deductions or credits and withdrawals for qualified educational expenses are generally tax-free. You can also front-load a 529 college savings plan by providing 5 years’ worth of annual gifts of $18,000 at once, up to $90,000 per beneficiary without paying a gift tax or affecting your lifetime gift and estate tax exclusion.
Medical, Healthcare, & Direct Educational Expenses
Direct payments for a loved one’s educational or medical expenses are exempt from the federal gift tax, without regard to the annual exclusion limitation. For medical expenses, the payment must be made directly to the health care provider or to a company that provides medical insurance. A payment to a school must be made directly (this includes colleges, universities, nursery schools, private grade schools, or private high schools). The payment must be for tuition only, and it can’t cover room and board or books.
Charitable Contributions
Charitable contributions made at the end of the year can reduce your taxable income. And there’s flexibility in how you can make those contributions. You can donate cash, or tangible personal property such as artwork, jewelry, antiques, etc. Many people donate appreciated stocks, bonds, or other securities because you can deduct the fair market value of the securities. The charity can sell them without incurring any capital gains taxes.
Your One Financial Services advisor will be pleased to review your year-end gift and donation strategy with you.