The countdown is on to 2023, and if you are like the members of the Palmer & Slay team, you still have a few items left on your to-do list. There’s always one or two things on the list that can be pushed to the new year, but making gifts and donations to minimize your tax burden is not one of them.
Gifting is the easiest, and often the most meaningful, way to minimize your current tax burden and your future estate tax burden. But it must be done before the clock strikes midnight on December 31.
At the end of each year, our experienced team of attorneys work with our high net worth clients in the Brandon, Mississippi area to make sure they have maximized their tax savings by making gifts to loved ones and charitable organizations.
Charitable Donations Reduce Your Current Tax Burden
By consulting with your CPA, or doing some quick calculations yourself, you can estimate how much you will owe in taxes for the current year. From there, you can decide if there is a charitable organization you would rather see that money go to, and make a tax deductible donation to them.
If you are going to be handing over the money to someone else anyway, why not give it to an organization that is important to you instead of Uncle Sam.
Minimizing Your Estate Taxes With Gifting
A similar tactic can be used to reduce your potential estate taxes. For 2022, you can pass up to $16,000 per person, to as many individuals as you would like, tax free. If you are married, you can double that to $32,000.
This amount will increase to $17,000 per person next year, but that is no reason to wait to get gifting since the gift tax exclusion is available each year. The annual gift tax exclusion can be great insurance against unfavorable estate tax laws that may be passed in the future.
The IRS has made it clear that individuals who take advantage of the gift tax exclusion will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels. This provides some comfort in the otherwise uncertain world of estate tax planning. Nobody knows what is going to happen post-2025 when the annual gift tax exclusion and the lifetime exemption — which is currently set at $12,060,000 per person, or $24.12 million per couple — is scheduled to change.
A Few Things To Think About
Before you whip out your checkbook, it is important to keep in mind that gifts other than cash count toward the gift tax limit. For example, if you bought a car for your grandchild as a graduation gift, and you paid more than $16,000 for it (or $32,000 if you and your spouse made the gift jointly), you will owe taxes on the gift and any other gifts you give that grandchild over the gift tax exemption limit.
If you are worried about what might happen if you give certain family members a sizeable chunk of change each year for the next few years, or you would like to make a gift to a minor, Palmer & Slay can help you set up a trust to hold your gifts. The money will no longer be yours, so you won’t be taxed on it, but we can craft a trust that limits your loved one’s access to the trust corpus. We can even set it up so funds can only be distributed for specific purposes, or if certain conditions are met.
Preserving Your Wealth. Protecting Your Loved Ones.
At Palmer & Slay we take great pride in the work we do to help our clients preserve their legacies and pass on the assets they have worked so hard to accumulate. If you have questions about end of the year gifting, charitable donations, or minimizing your estate taxes, we are here to help.