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Home » Manage Your Gifts in a Taxwise Manner

Manage Your Gifts in a Taxwise Manner

February 23, 2022 //  by WSI Reports

3 Tax Structures You Can Invest Under for Your Long-Term Portfolio - financial advisor - Best Financial Life

A financial advisor offers many different types of services to help clients manage their money. For example, a financial advisor can help you create a retirement strategy that produces a steady stream of reliable income throughout your retirement years.

One of the services a financial advisor provides for clients does not get as much attention as services such as improving your credit score and searching for the right life insurance policy. It is called learning how to manage your gifts in a taxwise manner. The fundamental principle behind managing your gifts in a taxwise manner is taking advantage of the annual exclusion for paying gift taxes. In 2022, individual taxpayers can give away $16,000 in gifts and not have to pay taxes. For couples, the value of the gift tax exclusion for 2022 doubles to $32,000.

However, you can donate gifts under certain circumstances and exceed the $16,000 exclusion limit for paying gift taxes.

Gifts to Charitable Organizations

When you donate gifts to an eligible charitable organization, you deduct the value of the gifts for tax purposes. For the most recent tax year of 2021, you can deduct up to 60 percent of your gifts to charitable organizations. You benefit from an additional exclusion when you donate assets such as stocks and property, instead of writing a check as a donation. You refer to the current market value of the assets to determine how much you receive in tax benefits by donating gifts to a charity.

Donor Advised Fund

You have the opportunity to take a huge tax exclusion for donating gifts to a charitable organization if you establish a Donor Advised Fund (DAF). Setting up a DAF allows you to take a large tax deduction in one year, and then distribute the gifts over the course of several future years. For example, you can establish a DAF valued at $50,000 and distribute $10,000 worth of gifts for five consecutive years.

You do not have to name the charities that receive your DAF funds until you are ready to distribute gifts from the DAF.

Real Estate as a Gift

Parents can help their kids out financially by gifting the family home. Their children enjoy a reduction in the capital gains tax, while possibly qualifying to keep the tax value base to calculate property taxes. The rules for gifting property to children constantly change, which means you should consult with a certified financial advisor before you gift your home to one of your kids.

Are There More Tax Exclusions?

Exceeding the 2022 tax exclusion value for an individual of $16,000 does not mean you have to pay gift taxes for gifts that exceed $16,000 in value. For financial planning, you have the opportunity to take advantage of the lifetime gift tax exemption, which is currently valued at nearly $12 million per taxpayer. Once you use up the entire annual $16,000 exclusion for gift taxes, you can give additional amounts that value nearly $12 million.

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