As we approach the holiday season, it’s a great time to remind everyone about opportunities for annual gifting and charitable contributions. As you gather with your family members, remember that each individual taxpayer can make a gift of up to $15,000 per beneficiary this year without using up any Federal Estate Tax Exemption. There is no limit on how many people you can make an annual exclusion gift to, and couples are two distinct taxpayers. That means that parents can make gifts of up to $30,000 per child if they split the gift. Of course outright cash gifts aren’t the only way to go, and gifting plans can be as simple or complex as the individuals involved. If you are looking to reduce your taxable estate without reducing your available exemption, you may want to discuss an annual gifting strategy with your estate planning professionals.
Charitable donations are also on many people’s minds during this season of giving. With the new tax laws, many itemized deductions have disappeared, but the charitable deduction continues to be available. Although the standard deduction may mean less incentive to itemize, for taxpayers who make charitable gifts year after year, “bundling” your charitable donations in one taxable year to exceed the standard deduction will allow donors to take advantage of the income tax deductions available. If you aren’t sure about making a large gift to one organization, consider setting up a donor advised fund that will allow you to direct your charitable donations to the charities of your choice over several years while receiving an income tax deduction for the full contribution all in the first year. Many of the larger investment institutions in the country have created donor advised programs for their investors, and local community organizations have been using donor advised funds for years.
Finally, if you have reached age 70 ½ and are required to take an annual distribution from your IRA, you may consider making a Qualified Charitable Distribution (QCD). In this case, the distribution you would have taken is distributed directly to the charitable organization of your choice. Those funds are never included in your taxable income so you still have the ability to utilize the standard deduction or make additional charitable contributions while benefiting your favorite organization. You may choose to make a QCD of only a part of your required distribution or all of such a distribution up to $100,000. If you are interested in making a QCD election, you should speak with your IRA custodian and other estate planning professionals soon.
Andrea Anderson is based in the firm’s Knoxville office. Estate Planning, Probate, and Trust Administration are Andi’s primary focus, and her practice routinely includes federal and state taxation, business formation, and charitable organizations ranging from formation and operations to dissolution. Andi started her career working in a boutique estate planning law firm where she developed her skills in drafting and implementing estate plans and advising clients on how to achieve their planning goals in a tax efficient manner.
Ms. Anderson served as president of Phi Alpha Delta legal fraternity while attending The University of Tennessee College of Law and received special orders from the IRS to practice as a student attorney in the Legal Aid Society of Middle Tennessee and the Cumberland’s Low Income Taxpayer Clinic, where she represented clients in tax controversy matters.