Year-end generosity

Give to others, not the Internal Revenue Service!

It’s year-end, and we all have to decide: how much are you planning to gift to the IRS? Here are a few last-minute considerations that may help you to meet your annual commitments and to reduce your tax liabilities.

Give to your family.

As a complement to more thoughtful and fun gifts under the Christmas tree, consider giving investments to your family. This is a great way to help introduce young children to investing, and make a bigger gift than you could after paying taxes. Because it’s a great way to trim concentrated positions and offload unrealized capital gains taxes.

Increase the ROI on your kids.

School costs continue to rise, but there’s very little doubt that education provides a huge return on investment. One of the best ways to defray the cost of education is to use 529 plans, which offer two main tax advantages: first, contributions are deductible from state income tax in over 30 states (something Florida residents fortunately don’t have to deal with); second, their earnings grow on a tax-free basis and distributions are not taxed if used for qualified education expanses. In addition to college costs, 529 assets can now be used to pay for up to USD 10,000 of tuition for K-12 education, thanks to changes in the Tax Cuts and Jobs Act.

Give to your future self.

It’s not too late to make sure that you’ve reached the annual limit on your retirement accounts and Health Savings Accounts! Don’t forget about any catch-up contributions that you and your spouse may be eligible for.

Give unto others.

For the philanthropically minded, the Tax Cuts and Jobs Act changed the calculation a little. Since the standard deduction was increased, it may make sense to bundle several years of gifting into a single year, helping to make it worth itemizing to deduct the gifts from your income. And there are other ways to increase the tax efficiency of your gift. For example, donating appreciated stocks or funds can also help to reduce your tax liability. And for investors that are older than 70-and-a-half years, Qualified Charitable Distributions (QCDs) from your IRA may not be subject to income tax. This may be a good solution for Required Minimum Distributions, especially if you’re trying to stay out of a higher tax bracket.

Plant a seed and watch it grow.

To help make charitable gifts go further, especially for long-term philanthropic goals, investors should consider putting the funds to work in a Donor Advised Fund (DAF) or private foundation, where they can be invested for returns or impact and keep growing in the interim before they are granted or donated. In fact, putting those DAF funds into a Sustainable Investing strategy can help those funds start doing good before they are ultimately distributed.

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