Save on Taxes this Holiday Season with Generous Gifting Strategies

Taxpayers can help reduce their tax obligations this holiday season by making strategic gifting decisions.

ftx-wealth-management copyWith the holiday season upon us, many people are turning their attention to giving. The end of the year is commonly a time when people search for the perfect present for their loved ones. What many do not realize is that strategic gifting can provide substantial tax advantages.

Set Up an Education Fund

Are you planning to send a loved one to college in the future? One of the best ways to make this possible is to create a front-loading 529 college savings plan. These accounts are extra-special because you can deposit up to five years’ worth of annual exclusion gifts at one time without incurring any taxable gift. This means the money can be passed onto your loved one tax free as long as they are eventually applied to qualified expenses for higher education purposes. In this scenario, it is important to note that if the donor of the front-loaded five-year gift dies within the five-year period, the prorated portion of the transferred amount for the years after death will be included in the donor’s estate for estate tax purposes.

Donate to Your Favorite Charity

Is there a particular cause or charity that is close to your heart? Gifting long-term appreciated securities can be a particularly tax-efficient strategy and helps provide much-needed funding to non-profit foundations. In general, donations of long-term appreciated securities (stocks or mutual funds) directly to a qualified charity are deductible at their fair market value on the date of contribution, and you do not have to pay capital gains on them. Additionally, the charity benefits from your generosity and is able to continue their work making a difference in the lives of others throughout the world.

Pay Off Medical or Education Costs for Someone Special

Do you know someone who has accrued a large amount of medical bills or education costs who you want to help? Direct tuition payments to a loved one’s medical care or education costs are not considered taxable gifts. Consequently, they do not count against your annual or lifetime gift tax exemption. This may include an aging loved one’s home care costs, a son or daughter’s college education, or a cousin’s unexpected medical bills. No matter who you help, your gift will be highly appreciated and will also help you reduce tax obligations.

Always consult with your tax attorney before making any charitable contributions, gifting funds, or paying for education or medical costs. Your tax lawyer can guide you through the process to ensure everything is done in compliance with current tax law so that you and your loved ones can take full advantage of the credits and savings available.

About Freeman Tax Law

Freeman Tax Law (FTL) is a boutique law firm consisting of a multi-disciplinary team of tax professionals including tax attorneys, CPAs and a professional staff that have vast experience with foreign tax compliance and regulatory matters for financial institutions. FTL consults with both FFIs and USFIs with regard to Foreign Account Tax Compliance Act (FATCA) and related regulatory matters and assists them developing procedures on how to comply with these laws. FTL provides a multidisciplinary approach for filing offshore voluntary disclosures. Working to help clients prevent future tax headaches we offer a complete wealth management and estate planning team. As an experienced firm with wide reach, Freeman Tax Law provides immediate assistance to our clients planning for and resolving all tax related challenges.

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