The holiday season is a time for generosity but it’s also an opportunity to make strategic financial moves before year-end. Gifting can help you support loved ones, reduce your taxable estate, and create charitable impact. Here are seven strategies to consider before December 31:
1. Utilize the Annual Gift Tax Exclusion
- For 2025, you can gift $19,000 per recipient without triggering gift tax or using your lifetime exemption.
- Married couples can combine exclusions for $38,000 per recipient.
- Gifts can include cash, appreciated securities, or contributions to a 529 college savings plan.
- Pro Tip: Gifting appreciated stock instead of cash can help you avoid capital gains tax while transferring value.
2. Direct Payments for Education or Medical Expenses
- Payments made directly to an educational institution for tuition or to a medical provider for qualified expenses are not subject to gift tax.
- This strategy allows you to support family members without using your annual exclusion or lifetime exemption.
3. Charitable Giving Before Year-End
- Donations to qualified charities can reduce taxable income if you itemize deductions.
- Consider Donor-Advised Funds (DAFs) for flexibility. You can contribute now and decide later which charities to support.
- Gifting appreciated securities instead of cash avoids capital gains tax and increases your deduction.
4. Qualified Charitable Distributions (QCDs)
- If you’re 70.5 or older, you can donate up to $100,000 per year directly from your IRA to charity.
- QCDs count toward your Required Minimum Distribution (RMD) and reduce taxable income.
5. Fund Retirement Accounts for Loved Ones
- Contribute to a Roth IRA for a child or grandchild (within contribution limits and earned income requirements).
- This gift grows tax-free and can provide decades of compounding benefits.
6. Use Your Lifetime Gift and Estate Tax Exemption
- The current exemption is $13.99 million per individual (2025), and it’s scheduled to increase in 2026.
- Consider making larger gifts now to lock in today’s higher exemption.
- Pro Tip: Gifting interests in a family business or real estate can leverage valuation discounts.
7. Charitable Trusts and Advanced Strategies
- Charitable Remainder Trusts (CRTs) allow you to donate assets, receive income for life, and get an immediate tax deduction.
- Charitable Lead Trusts (CLTs) provide income to charity for a set term, then transfer remaining assets to heirs often with reduced estate tax impact.
Why Act Before Year-End?
- Many strategies require execution before December 31 to count for this tax year.
- Acting now can help reduce your taxable income, lock in exemptions, and create a lasting impact for your family and causes you care about.
Conclusion
Thoughtful gifting isn’t just about generosity. It’s about aligning your financial plan with your values. Before making significant gifts, consult with your financial advisor and tax professional to ensure your strategy fits your overall goals.
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