Making the most of gifting rules

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Q. I want to start gifting my money. I have two sons, three grandkids and a couple of charities. What are some strategies to make the most of my tax deductions with gifts?

A. It’s great to know you’re in a financial position to gift to family and to charity.

For starters, when you make a gift to anyone, there is no income tax deduction to you, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette.

He said when you make a gift, you are in essence reducing your estate value when you pass away.

But there are tax rules for gifting, courtesy of the IRS.

For 2015, the annual gift tax exclusion is $14,000 and can be made to anyone, Maye said. If you are married, you can make a split gift and double the amount to $28,000.

“If you make a gift to anyone, above the annual exclusion amount it eats into your federal estate tax exemption, which is $5.43 million,” Maye said. “Gift tax rules also allow for some other payments above the annual exclusion for items such as medical expenses and tuition costs, which must be paid directly to the institution.”

He said the gift tax laws also allow for accelerated funding of 529 plans above the annual exclusion amount.

So in essence, your gifting to a family member does not help you from an income tax perspective, but it might from an estate tax perspective.

The federal tax code does allow you to deduct gifts to qualified 501(c)(3) charities as an itemized deduction, said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.

In order to be able to benefit from a donation to a charity, you need to have total itemized deductions — including medical expenses, taxes, mortgage interest, charitable donations and miscellaneous deductions — that exceed the standard deduction each taxpayer receives, Papetti said.

He said in 2015, the standard deduction for singles as well as those married filing separately status is $6,300, and it’s $12,600 for those married filing jointly.

“Note the State of New Jersey does not allow any tax deduction for gifts to charity,” Papetti said.

And while you do not receive any income tax benefit from making gifts to family members, gifting assets with a low cost basis — rather than cash — may save capital gain taxes upon sale of the asset if your children or grandchildren are in a lower tax bracket, Papetti said.

The same strategy can work for gifts to charity. Maye said one of the best ways to give to a charity is via highly appreciated stocks.

“By donating the highly appreciated stocks, you avoid capital gains taxes and still get to take the itemized deduction for fair market value of the stock,” he said. “When the charity goes to sell the stocks, they pay no capital gains. It is a win-win for you and the charity.”

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This story was first posted in September 2015. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.