‘Tis the season: Badgley Phelps' financial gift guide

by Badgley Phelps | Dec 04, 2018

It’s that gift-giving time of year, and financial gifts can be both meaningful to family members and beneficial to givers when it comes time for taxes. Gifting can help reduce the size of your taxable estate and, therefore, eventual liabilities. Here are several financial gift ideas for this holiday season.

Give the gift of cash

Though teenagers might prefer “V-Bucks” from the popular videogame Fortnite, no one on your wish list would frown about a gift of cash. For this tax year, you can gift a single person up to $15,000 without having to pay gift tax. You’ll never have to pay taxes on gifts that are less than or equal to the annual exclusion limit. If you give gifts of more than the annual gift exclusion amount, you’ll use part of your lifetime federal gift tax exclusion, recently increased to $11.18 million.

Give the ultimate stock-ing stuffer

You may be able to get even more bang for your buck by gifting highly appreciated stock. If your children are in a lower tax bracket than you, they may be able to sell the shares for a smaller, or even potentially no capital gain. In 2018, realized capital gains are taxed at 0 percent for single filers with income of up to $38,000 and joint filers with income up to $77,200. For example, if you gifted a stock worth $15,000 with a $5,000 cost basis and you are in the 15 percent capital gain tax bracket, you would owe tax on the $10,000 gain of $1,500 when you sold the stock. However, if you gifted the shares to a family member in the 0 percent capital gains bracket, they would not owe any income tax when the stock was sold.

Unwrap an education

According to the College Board, the average cost of tuition and fees for the 2017–2018 school year was $34,740 at private colleges, $9,970 for state residents attending public universities and $25,620 for out-of-state residents. The holidays are a great time to help children or grandchildren save for college by contributing to, or establishing, a 529 plan. 529 plans are operated by the states. Some states even offer tax incentives to participate. Earnings aren’t subject to federal tax when used for qualified education-related expenses.

Consider a charitable donation in their name

According to Giving USA, charitable giving was up 5 percent in 2017, with Americans giving $410 billion to charities. The holidays are a great opportunity to make a contribution to a charitable organization that’s particularly important to those on your wish list. You can either make a direct gift, or, perhaps a better strategy is to set up a donor-advised fund. Donor-advised funds (DAFs) help the fund-holder establish a longer-term giving strategy for the future. DAFs help the recipient establish a charitable legacy, with gifts growing, tax-free, over time. An effective strategy can be to donate appreciated stock to the donor-advised fund. The DAF can sell the stock and avoid capital gains tax.

For yourself

The end of the year is the time to treat yourself to a financial checkup. Get in touch with your trusted adviser and review your own financial roadmap to make sure there are no surprises in the coming year. Need help? Our wealth managers and financial planners have decades of experience helping clients retain and grow their wealth. Get in touch >


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