Generally speaking, Americans are a generous group. Once we meet our own financial needs, we start thinking about others who could benefit from what we’ve earned.
While reducing income taxes isn’t the primary reason most people give, it does pay to think about it, because the right approach may allow your gift to have a substantially greater impact for you, for the recipient, or both of you.
Giving to charities. Charitable donations can be deducted from income tax, but only if you itemize deductions when you file your taxes. It’s important to maintain good records of your donations, whether you make them to your house of worship, a charity like the Red Cross, or any other nonprofit organization that meets IRS standards. Charitable gifts don’t have to be monetary to qualify as deductions. You can take a deduction for donations of furniture, vehicles, or other items, but you have to provide an honest, accurate value. Claiming that your 15-year-old economy car with the missing door is really worth $20,000 is asking for trouble.
Giving to individuals. If you’ve considered leaving what you own to your children or others, you might want to think about giving something to them now – especially if your estate may be large enough to be taxed. You can give as many people as you want up to $11,000 each (the amount changes each year) without incurring any taxes. One way to give to those who may not be old enough to manage money wisely is to set up what’s known as a custodial account. You can also pay someone’s qualifying educational or medical expenses, as long as payments are made directly to the school or medical provider.
Get advice. The tax laws regarding gifts are complex, and this article is intended only to provide general information. We recommend that you consult with your accountant, attorney or other financial advisor regarding your situation.
The above is not intended to be tax advice, was not written by a tax professional and is informational only. Please consult a tax advisor for your specific situation.