Are you still in your Ebeneezer Scrooge phase of life, where every dollar is dear? Or have you reached a stage in life where money worries are beginning to ebb? If you are in the latter stage, now is a great time of year to consider gifting cash to your loved ones. Think about it - before you are visited by the ghosts of Christmas Past, Present, and Future!
We frequently advise clients who have been blessed with financial security that they should consider the gift of cash to their loved ones. Clients usually want to know “Can I afford to? Are you sure we have enough?” Often, it is an emphatic “Yes!” Sometimes we suggest updating their financial plan to project how different levels of gifting will or will not affect their financial security.
It seems as if we spend our lives saving, coupon-clipping, and buying on sale in order that we might not worry about money later on. The mentality of feeling as if you don’t have enough wealth is a mindset we naturally carry into retirement.
Despite this apprehension, there are joyful reasons why gifting while you are alive might be a sensible strategy. For instance, you can experience the fun and satisfaction of giving firsthand. You will be helping your loved ones build their best life now, while you are still here to enjoy it.
There are a few tax laws you should be aware of as you consider what, and how much, to give. The IRS regulates how much an individual donor can give away in a year before requiring a Gift Tax Return. This is called the Annual Gift Tax Exclusion Amount. For 2022 it is $16,000 and it increases to $17,000 in 2023. That means a married couple can both give that amount, effectively doubling the gift if they so choose.
Gifting cash is easy and probably best. Occasionally, clients want to gift stock that they have owned for years, essentially trying to avoid paying the capital gains tax on the appreciation. It is important to understand that your original tax basis goes with the gift. The taxes due on the eventual sale of the asset will remain the same. A better use of those appreciated assets, if you have some favorite charities, is to gift them to a charitable organization. When they sell the asset, no taxes will be paid on the gain, and you can deduct the full value of the gift off your tax return. A win – win for you and the charity, but not so much for Uncle Sam.
Everyone needs to learn how to handle money and invest. It is a tricky, emotional business. One strategy is to seed an investment account for a loved one with a lump sum along with instructions saying it is a gift of investing education. They should carefully invest and save it for their long-term future. Such a loving gift helps them learn to be a good steward of their wealth.
Please click here to learn more about Year-End Charitable Gifting.
“And it was always said of him, that he knew how to keep Christmas well, if any man alive possessed the knowledge. May that be truly said of us, and all of us! And so, as Tiny Tim observed, God bless Us, Every One!” ― Charles Dickens, A Christmas Carol
Happy Holidays and a fruitful New Year from the team at Westfield Financial Planning!