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Charitable gift giving

laptop with word charity and giving hands on screen

Sometimes the gift of cash is better than anything you can put under the tree. However, with any monetary gift, it’s important to understand the tax rules. To help you out, we’ve compiled this brief overview to help you give wisely. (Note: Unless Congress acts before December 31, 2025, these rules will revert back to those in effect in 2017.)

Be familiar with the estate and gift tax
The lifetime estate and gift tax exemption was more than doubled under tax reform from $5.49 million per person to an estimated $11.4 million per in- dividual and $22.8 million for a married couple—with an inflation adjustment for future years. The annual gift exclusion amount remains at $15,000 for 2019 per recipient.

Keep in mind that if you live or own property in states with state estate or inheritance taxes, where the non-taxable exempt threshold is much lower than the federal exemption, you may still owe taxes.

Have an income tax plan
Before you give to charities or individuals, it is important to consider how doing so may impact your annual taxes. As you likely recall from last tax season, the personal exemption was eliminated while the standard deduction was nearly doubled to $12,200 for individuals and $24,400 for married couples filing jointly. If you are a taxpayer who is 65 or older, blind or disabled, an additional $1,300 is available.

Can’t itemize? Consider these giving options
If you can’t itemize your deductions, these strategies can help you itemize periodically, reduce your taxable income, or even return income to you:

  • Bundling itemized deductions.
    If you have the flexibility to time the payment of qualifying deductible expenses, you may want to consider bundling them into alternate years to increase the likelihood of being able to itemize deductions.

  • Use donor-advised funds.
    These funds allow you to make a large contribution in one tax year to establish or add to them. If it is large enough, you may be able to itemize deductions that year. In future years, if your deductible expenses are not large enough to itemize, you can request the donor-advised fund administrator to make a distribution to your chosen charity.

  • Consider gifts that return income. 
    Starting a charitable gift annuity or a charitable remainder trust can help you itemize in the year they are funded—while also receiving annual income in the future. Keep in mind that only a portion of the contribution is deductible because the donor receives income for life or for a period of years.

  • Select donor-friendly assets.
    Working with an investment professional can help you choose the right assets for your charitable contribution. Making sure you comply with all tax laws and don’t pay more than you need to on taxable gains is important.

  • Know whether to choose charitable rollovers or qualified charitable distributions.
    If you are 701⁄2 years old or older and required to take minimum distributions from your retirement account, think about asking your plan administra- tor to make a distribution directly from your account to a qualified charity.

Although you won’t get an itemized deduction for that contribution, your favorite charity will get a nice gift. And the amount contributed out of your RMD won’t be reported as taxable.

This summary will help you start thinking about planning for the tax implications of charitable do- nations and cash or asset-based gifts. For assistance with your specific gift-giving situation this holiday season, please contact our firm.