As we navigate through the obstacles of the pandemic, many people and businesses are finding themselves thinking about the long term effects. Although it may seem difficult to think about gifting right now, it is a good time to learn about the benefits and take advantage of it to help you save money in the long run.
Benefit #1 – Tax Exemptions
At this current time, the federal gift tax exemption is at an all-time high. As of January 1, 2020, the inflation-adjusted exemption amount increased to $11.58 million per person with a top rate of 40%, and a federal gift tax annual exclusion per donee of up to $15,000.
Benefit #2 – Decrease in Asset Value
Even though a decrease in asset value typically is not good news, it gives you an advantage when it comes to gifting. By giving up your lower-value assets now, individuals can use up less of their exemption amounts to get more for future gifts. If the person you are gifting to is in a lower income tax bracket than you, then any post-gift income generated by the gifted asset will be taxed at a lower rate. As a result, you get more overall tax savings.
Benefit #3 – Low Interest Rates
In addition to the low asset values, there are also low interest rates during this time. With lower interest rates, it allows you to save more as we work as a country to revive the economy.
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Benefit #4 – Charitable Gifts
Charitable planning has gained more awareness due to the increase in job loss and the decline in the economy. Tax-exempt charitable organizations are important because they help those in need. At the same time, it also helps some taxpayers bunch two years’ worth of planned charitable gifts into one tax year, to gain more tax benefits.
The CARES Act promotes additional charitable giving by allowing a $300 above-the-line deduction for cash charitable gifts by non-itemizing taxpayers and increasing the charitable deduction AGI percentage limitation from 50% to 100% for itemizing taxpayers.
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