Last-minute gift giver? No worries. One of the best gifts you can give is still available, doesn’t require wrapping (or shipping), and may pay you back to boot. Money. It’s not as impersonal as you think. Best of all, no one ever sends it back. Here is what I mean.
1. Give to a charity in someone’s name.
You can give to a favorite charity in the recipient’s name and qualify for a tax deduction. It is called the charitable contribution deduction. Just make sure the gift is to an IRS qualifying charity. Many qualify, but not all. Check here to see if the charity you are considering qualifies. Your actual cost of your gift will be reduced if you itemize your deductions. Say, you’re in the 33% tax bracket,for example; your $100 donation could qualify for $33 in tax savings, making the actual cost of your gift $67. That’s much better than a set of Ginsu Knives.
2. Give a cash boost. Why not?
A gift of up to $14,000 can be given to an individual without a tax penalty under the federal gift tax exclusion. Each member of a legally married couple can contribute the gift tax limit of up to $14,000 to the same beneficiary, doubling the federal gift tax exclusion. For example, parents can give their child $28,000 under the federal gift tax exclusion. Individuals can give a $14,000 gift to as many recipients as they wish and -- at the same time – reduce their taxable income. Win. Win.
3. Pay bills.
You can pay an individual’s medical expenses or tuition beyond the $14,000 gift tax limit. What a way to help a loved one with unforeseen or overwhelming expenses. You must pay the hospital or college directly, otherwise the gift will be taxable if it passes the $14,000 mark. Pay the institution, keep good records of receipts, and lower your tax burden. How much are they going to love this?
4. Create or contribute to an education savings account.
A college savings plan is called a 529 plan for section 529 of the tax code. These plans are a popular way to fund college tuition and pay other qualified educational expenses. The 529 plans fall into two categories: pre-paid tuition plans and college savings plans. Prepaid tuition plans lock in tuition at the current rate. College savings plans do not lock in the cost, but can be used for a wider range of expenses, including books, fees, computers, room and board. A college savings plan, or 529 plan, is a popular way to ay college tuition and other qualified educational expenses. The 529 plans fall into two categories: prepaid tuition and college savings. Prepaid plans lock in tuition at the current rate. College savings plans do not lock in the cost, but can be used for a wider range of expenses, including books, fees, computers, room and board. Parents, grandparents, aunts, uncles, godparents, anyone can set up and manage a 529 plan for a beneficiary. The beneficiary can be changed to a family member without penalty. A tax professional can help you decide if a 529 plan is the right move for you. You just have to figure out how to wrap it.
5. Give property.
Cars, real estate, and other things can be given as gifts and can fall under the federal gift tax exclusion. You must have the items appraised to know the fair market value. Copies of the appraisal, transfer documents and documents of unusual items must be included with your tax return. This gift will be more of a hit than that Snuggie you gave last year.
If you’re considering these gifts, it’s wise to seek the advice of a qualified tax preparer before and after you give. He or she can help you understand the complex tax rules and make sure your giving qualifies for tax deductions.
Now about those Ginsu Knives and that beloved Snuggie. If they still are in new or even good condition (How could they not be?), the people who received them can donate them to charity. They should get a receipt of their donation and consider deducting the fair market value of the gifts when they have their taxes done. See, they did come in handy after all.
-- By Megan Clevenger
Disclaimer: Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.