FROM THE BLOG

‘Tis the Season of Giving! Consider These 3 Ways that Giving Makes a Difference for Your Finances

As the holidays approach, you may find yourself feeling generous. And if you haven’t quite caught the spirit of giving, some reasons to consider financial gifing this season include:

  • It might help you to organize your finances
  • It’s a way to teach your children and others around you to live generously
  • It can make you feel good and increase your happiness
  • You can make a tangible difference in the life of your family member or friend who receives your gift — or those helped by a charity you support. 

If these reasons aren’t enough to spark your desire to give this season, you may be interested to know that that financial gifting is a possible way to reduce your taxable income and thereby pay less in taxes next year. 

When you’re considering financial gifting, it’s important to note some potential implications about the different kinds of gifts you give this holiday season. Read on to learn about a few ways you might decide to give:

1. Giving Financially to Individual Family Members 

Giving to family members is a great way to be generous this holiday season, especially as your children start families of their own, or your grandchildren head to college and start new jobs. According to the IRS, a gift is considered “any transfer to an individual, either directly or indirectly, where full consideration is not received in return.”

For gift giving to family members or to any other individual, gifts that do not exceed $15,000 per person, per year are not taxable as they do not exceed the annual exclusion for the calendar year. If your gift to a family member is going to exceed the annual exclusion, you will need to fill out some forms and have handy the documents that will help you complete it, like copies of appraisals or documents regarding the transfer.

Of course, these are just some of the tax implications for giving to family members or other individuals to be aware of, but there are other considerations like your own needs and desires for your ideal financial future. Perhaps for your particular financial situation, individual gift giving makes less sense than investments for grandchildren or even gifts to charitable organizations.

To keep track of large financial gifts or how money gifted today impacts tomorrow’s retirement goals, you may want to enlist the help of a professional. Your financial advisor can help you break down your financial goals, navigate any necessary paperwork, and help you to prioritize spending in the short- and long-term.

2. Investing in Your Family’s Future

When it comes to individual financial gifts, you might also consider long-term savings for children and grandchildren. Some options include:

  • Establishing a trust
  • A 529 educational account
  • Gifting IRA earnings or savings bonds. 

Establishing a Trust

Trusts can be an ideal option for individuals who have a considerable amount of money to give or invest and want to generally maintain how the money is managed even posthumously. Establishing and putting money into a trust is relatively easy, but you have to make many decisions regarding trust management. These include:

  • Whether you will set up a single trust for multiple grandchildren or family members or separate trusts for individual beneficiaries
  • What type of trust to set up
  • When the funds will be released
  • How funds may be spent
  • Whether funds will be prevented from being released under certain circumstances
  • A trustee who will manage the assets and approve the release of funds

Taxes on trusts are another important consideration, given that things can get a little complicated when there are multiple parties involved. Your financial advisor is an ideal partner in sorting out these details and making an educated decision about gifting a trust.

Educational Savings (529 Accounts)

If education is important to you and your family and you like the idea of paying minimal taxes on your gift, a 529 account may be an option for financial gifting to a child or grandchild. Putting money aside in a 529 account ensures your beneficiary will use the money for education and allows your money to grow tax-free.

There are different kinds of plans to take advantage of, and different states mandate differently on these types of accounts, so consult your financial advisor for guidance on what kind of 529 options are ideal for your circumstances. 

Bonds

Some people prefer to give the gift of an investment. Savings bonds are a popular vehicle for this type of financial gifting.

If you decide to purchase a savings bond or give one as a gift, the interest earned on it will be taxable. The listed sole owner of the bond will be responsible for paying the taxes on the interest, so if you gift a bond to a child or grandchild, you can either retain sole ownership, add them as a co-owner, or make them the sole owner.

There are some options regarding when you pay the taxes on this interest. Your financial advisor can provide you with options, as well as guidance on choosing an ideal payment option.

The Bottom Line

These are a couple options and tax implications for long-term savings for grandchildren. Conversations with your financial advisor, CPA, and the parents of your grandchildren are important ones to have. Ideally, you want to do what’s best for your own finances as well as make a positive impact on your family members’ financial futures.

3. Giving to Charitable Organizations

Another option for giving over the holiday season is charitable giving. After all, this is an important season for the non-profits and other 501(c)(3) organizations in your life. Why not give them a financial boost to put them ahead in the new year?

There are a few important details regarding how you write off charitable giving for tax purposes, which your financial advisor or CPA can help you to understand. One important thing to remember is that 2017 tax reform has increased the standard deduction, which has changed the way people are able to deduct from their taxes for their charitable giving.

You have some options for planning your charitable giving in order to make a difference to the organizations you support and your own tax bottom line. It’s important to discuss this with your financial professionals in order to get the clearest picture of how you can proceed with charitable giving this holiday season and beyond.

Make the Most of Your Financial Gifts

If you are looking for ways to give a little and improve your personal tax strategy at the same time, you have quite a few options. The choices listed here are certainly not exhaustive! 

If you desire to pursue financial gifting this holiday season and aren’t quite sure where to start, our team of CFP® professionals at Puckett & Sturgill Financial Group are ready to help you find the smartest way to give. Contact us for a consultation or assessment today! 

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program.  Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.