I know, I know – yet another “year-end tips” article. But mine will be short and sweet. I promise. Here are my 3 favorite ways to have an awesome impact on someone else’s life. The only rub – you may need to act fast if you like the idea of paying less taxes.
1. Give stuff to charity
As the government continues battling about how to spend less and earn more (taxes), there’s a good chance that deductions for charitable donations will be reduced for high income earners. On the other hand, income tax brackets for those same earners are expected to be higher, so charitable deductions may be worth more in 2013. My right brain gets sad when people let the tax tail wag the generosity dog. I’ve been told that you never really feel a sense of having enough until you’ve given some of your wealth away. I believe that with all my heart.
I’ve always loved the system of giving at least 1% of your net worth, or 5% of your income, annually. If you’re not sure what cause is the most worthy of your generosity, then you can establish a donor advised fund, make the donation now (ie. get your tax deduction now), and decide later who should get the money. And remember, if you have old stocks (or funds) that would otherwise be subject to tax when sold, consider giving these away instead of giving cash – one of the true no-brainer gifting strategies.
2. Give stuff to loved ones
If you’re a wealthy individual, there’s a really good chance that when you die, the person(s) you want to receive your wealth will get a lot less if you wait until you die to pass all of it along. If you’re not losing sleep over the idea of outliving your assets, consider giving a little of your wealth away now to that friend or family member in need. You can give up to $13,000 in 2012 to anyone and not have to deal with any IRS forms (the ceiling shifts to $14,000 in 2013).
At some point, the government will agree on how big a person’s estate can be before they take a slice of your wealth when you die. If you are between the ages of 40 and 60, and you have assets (home equity, investments, etc) totaling more than $2 million, there’s a good chance that when you die, estate taxes will reduce the amount of wealth that gets passed along to your heirs. With no advanced planning, you may have just named the IRS as one of your future beneficiaries. With a little planning, you can see that all of your wealth goes to loved ones.
3. Give stuff to a kid’s education
If you have a child, grandchild, niece, nephew, etc; and you plan to make a future gift to a 529 plan for their benefit, now is as good as a time as any if you think that you will have to pull funds from a personal investment account. Why? If you will incur capital gains to do this in 2013 or 2014, you might as well do it now. There is a high likelihood that it will cost more to sell investments in 2013 than in 2012 (federal capital gains rate is scheduled to rise from 15% to 20% on January 1st). 529 plans also have some cool rules that allow you to make a gift much larger than the annual limit of $13,000 (consult your advisor or accountant for those details).
The opinions expressed are those of the author and are subject to change without notice in reaction to shifting market conditions. This blog is provided for informational purposes, and it is not to be construed as an offer, solicitation, recommendation or endorsement of any particular security, products, or services.