Smart ways to donate and give.
Summary
Scott Wait explains the tax and planning differences between charitable donations and personal gifts, covering income tax limits, estate/gift tax exclusions, and the recipient’s tax burden. He compares cash versus appreciated assets for both giving scenarios, emphasizing the importance of vetting organizations and aligning gifts with the recipient’s tax situation.
Key takeaway
Donations – Definition & Vetting
Donations must go to qualified charitable organizations and should be vetted for mission alignment and management quality.
Mr. Wait explains that the IRS defines a donation as a gift to a 501(c)(3) organization, and SMART planning includes both vetting the charity and reviewing the income tax impact.
Donations – Income Tax Limits (2023)
Cash donations are deductible up to 60% of adjusted gross income, while non‑cash appreciated assets are limited to 30%.
Scott provides an example: a couple with $1M income can deduct up to $600K in cash ($222K tax benefit at 37%) or up to $300K in appreciated assets ($111K tax benefit); excess can be carried forward.
Gifts – Definition & Gift Tax Exclusion
In 2023, annual gifts up to $17,000 per recipient per year do not require IRS reporting; lifetime exemption is $12.92 million.
Mr. Wait said a gift is a transfer from one individual to another, with no income tax deduction for the giver, and gifts above the annual exclusion must be reported on Form 709, subject to a 40% gift tax above the lifetime exemption.
Gifts – Spousal Transfer of Unused Exemption
Unused gift/estate tax exemption of a deceased spouse can be transferred to the surviving spouse.
Scott notes that if a husband passes away without using his full $12.92M exemption, the remaining amount (e.g., $5M) can be transferred to the surviving spouse, though specific transfer rules are beyond the podcast’s scope.
Gifts – Recipient’s Future Tax Burden
Cash gifts have no future tax burden for the recipient, but appreciated assets donated by the donor during their life trigger capital gains tax when sold.
Scott illustrates: a $500K cash gift has no income tax for the recipient, whereas a $510K appreciated stock gift (with $10K cost basis) would result in roughly $119K in capital gains tax (20% + Medicare surtax) if held over 12 months; short‑term gains are taxed as ordinary income at ~41%, reducing the net gift to ~$300K.
Summary of Best Practices for Giving
Smart giving requires vetting organizations for donations, aligning gifts with recipient goals, and understanding the tax rules for both income and estate/gift planning.
Mr. Wait concludes by recommending that donors consider the income, estate, and gift tax implications, and notes that RSW Wealth Management offers complimentary meetings to discuss individual plans.