Charity donations and investing in a loved one’s future has always been a strategic choice in reducing tax liabilities. There are certain provisions in the law which states that such acts of thought and kindness towards the society should be promoted and hence, the IRS supports those who wish to contribute to donate or secure a loved one’s future.
There are many ways through which you can make such investments, but what are the best ones? Which investments will give you the maximum tax benefit is the point of agenda of this blog.
Let us look at a few smart tax-saving tips which can help you save big on your taxes.
Donate Appreciated Investments
You can donate the appreciated investments owned by you for more than a year to qualified charitable organizations. The point or trick is to keep in mind that you can seize the chance for a more significant tax break if you donate such investments after maturity of more than a year. If you donate your appreciated investments which age less than a year, then the relative tax benefit would be lesser when compared with the above scenario.
Use Donor Advised Funds
The Donor Advised Funds (DAF) are a tool for you to donate or gift your appreciated investments. There are many Donor Advised Funds which you can explore. You can use the DAF of the Morgan Stanley Global Impact Funding Trust (MS GIFT) along with others. Such tools allow you to donate stock, mutual fund, or other assets in a tax-efficient manner and claim a tax deduction.
Reduce Estate Taxes with Financial Gifts
You can now save big on your estate taxes by making financial gifts before the year ends. The limit of such gifts can touch $15,000, which can be gifted to an unlimited number of people per year without incurring a gift tax. A point to keep in mind is that you cannot carry over unused exclusions from one year to the other. Hence, ensure to make use of them in the same year.
By considering this, you can help your family as a whole to pay fewer taxes by giving income-earning property to those who come within the lower income tax brackets.
Another point to keep in mind is that $15,000 annual exclusion as discussed above does not count against the estate tax exemption of $11.4 million for singles, and $22.8 million for married couples.
Also, a gift which you might give as tuition payments directly to an educational institution or medical expenses paid directly to the provider is not taxable. This means that such contributions do not reduce your annual $15,000 gift tax exclusion or your lifetime estate tax exemption.
Donate for Education
Another way to save big on your taxes is by using the ‘529 Education Plan’. Under the 529 Education Plan, you or anyone like your grandparents can contribute up to $15,000 per year, if filing individually, and $30,000 per year, if filing jointly as a married couple. The most significant benefit here is that such a gift does not trigger the gift tax, and this is how you may get a small tax break.
Many states in the U.S. offer state income tax deductions to residents to contribute using their plans. There are also a few states who provide such benefits regardless of which plan you use for making such contributions.
One of the lucrative features of using the 529 Education Plan is that it allows you to collate up to five times the annual gift tax exclusion in a single year. What this implies is that singles can contribute up to $75,000 per recipient in a single year — and married, if filing jointly, can contribute up to $1,50,000 per recipient in a single year.
Another way you can save big on your taxes, if you have sufficient means, would be opting for the six-year gift tax averaging. To pursue this, you can contribute a year’s worth gift in December and a total of five years of contribution in January. This effectively enables you to contribute a gift worth six years in just two months.
There are many ways which you may opt for reducing your tax liabilities. Charitable donations and investments for securing the future of your loved ones, definitely, are one of the toppers in the charts. The crux is that you should be aware of the various tax codes and schemes which allow you to seize the best tax benefits for your contributions.
To understand all your options and earn the maximum tax benefit, you can approach your MyTaxFiler expert and explore all your options.