The benefits of year-end giving
By Mark Sipos, LFG Tax Director
The holidays are near and many of you start thinking of giving – whether directly to a loved one or through your favorite charities. Year-end gifting offers two main types of tax benefits: reducing your taxable income through charitable contributions and reducing your taxable estate through gifts to individuals.
Gifting to Individuals
Gifts to individuals are generally not income tax-deductible for the donor, but strategic gifting can help manage gift and estate taxes.
- Annual Gift Tax Exclusion: For 2025, you can give up to $19,000 per person to an unlimited number of individuals without any gift tax implications or the need to file a gift tax return (Form 709). Married couples can "gift-split" to give a combined $38,000 per recipient.
- Lifetime Gift and Estate Tax Exemption: Gifts exceeding the annual exclusion amount are not immediately taxed but reduce your unified lifetime gift and estate tax exemption. For 2025, this exemption is $13.99 million per individual ($27.98 million for a married couple).
- Direct Payments: Paying a loved one's medical expenses or educational tuition directly to the institution or provider is not considered a taxable gift and does not count against your annual exclusion or lifetime exemption.
- Gifting Appreciated Assets: Gifting cash is generally simpler. If you gift appreciated assets (like stock) to an individual, their cost basis is the same as yours (the donor's basis). This means they will have to pay capital gains tax when they eventually sell the asset.
- Timing: Gifts must be completed by December 31 to count for the current tax year.
Charitable Gifting
Charitable contributions offer immediate income tax benefits if you itemize deductions on your tax return.
- Income Tax Deduction: You can deduct contributions to qualified 501(c)(3) organizations. The deduction is generally limited to a percentage of your Adjusted Gross Income (AGI), typically 60% for cash gifts to public charities.
- Gifting Appreciated Assets: Donating long-term appreciated non-cash assets (like stock or real estate held for more than one year) directly to a charity is highly tax efficient. You can deduct the asset's fair market value and avoid paying capital gains tax on the appreciation, which effectively increases the amount of your donation and your tax savings. The deduction is generally limited to a percentage of your Adjusted Gross Income (AGI), typically 30% for cash gifts to public charities.
- Donor-Advised Funds (DAFs): Setting up your own Donor-Advised Fund can offer big tax savings, and create a gifting legacy for your family. You can contribute assets to a DAF by year-end to get an immediate tax deduction and then recommend grants to specific charities over time.
- Qualified Charitable Distributions (QCDs): If you are age 70½ or older, you can make a QCD of up to $108,000 (for 2025) directly from your IRA to a qualified charity. This amount is excluded from your taxable income and can satisfy your Required Minimum Distribution (RMD), though you cannot also claim a separate charitable deduction for it.
- Deadlines: For a deduction in the current tax year, the gift must be completed by December 31 (e.g., checks must be postmarked by this date).
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