The Gift of Giving
December 12, 2019
As we sit here at the end of 2019 enjoying the start of the holiday season, we can’t help but feel this is a year to really embrace the good. For many of us, the year has felt unsettled and uncertain every step of the way, and yet the markets have been strong and there is much to appreciate. With that in mind, as you do consider your year-end tax planning, why not focus on all the good we can do giving to others? Below are a few year-end planning tips to help you maximize the good you want to do while still minimizing how large of a gift you will give to Uncle Sam.
1. Give to your favorite charities
Gifts to charity are still tax deductible if you itemize. If you are not able to itemize, you may want to consider setting up a donor- advised fund and lumping several years’ worth of gifts in a single year. This may allow you to itemize, then you can spread out charitable giving from the fund over several years.
Are you required to take a distribution from your IRA? You are probably aware that you must start taking your Required Minimum Distribution (RMD) from your traditional IRA by April 1st following the year in which you reach age 70 ½. Then going forward all distributions must be made by December 31st. If you must take a RMD, you may want to consider a qualified charitable deduction or a QCD. A QCD allows you to distribute funds from your traditional IRA to a qualified charity of your choice. The distribution counts against your RMD for the year, up to $100,000. The amount of the distribution will not be included in gross income, and therefore you don’t have to pay ordinary taxes on them. Note, that you are not allowed to double count that amount by trying to also report it as a charitable contribution for the year.
2. Give to family and friends
You can give $15,000 to any person you choose or $30,000 if you are a married couple without using any of your lifetime gift exemption. This is a perfect time to give to family and friends. It may also be a great opportunity to fund a 529 plan. Feeling extra generous? You can frontload a 529 plan with five years of gifts into one. This means an individual can contribute $75,000 tax-free into a 529 plan or $150,000 per couple, if gift splitting, before December 31st .
3. Give to yourself
While it is important to give this time of year, don’t forget to give to yourself and more importantly your future self. Don’t forget to max out your tax-deferred retirement accounts.
In 2019 you can contribute the following:
$19,000 or $25,000 if you are age 50 or older. Make this the year in which you increase your contribution to your 401K. Ask about directing a piece of any year-end bonus to your plan to increase your contribution this year. If you can’t contribute the full amount, try to contribute at least the amount that will be matched by your employer.
$6,000, plus an extra $1,000 if you are 50 or older. You can do this even if you’ve contributed to your 401K. However, you may or may not be eligible to deduct these contributions depending on your tax situation for the year. You have until April 15, 2020 to make your IRA contribution.
As always, please be sure to consult with your tax advisor to confirm that these gifting strategies are appropriate for your personal circumstances.
We hope you take time this Holiday Season to appreciate friends, family and all the good you have enjoyed this past year!
