Ever since I was a little kid, I have given money as gifts to my friends and family. Sometimes, people go through some tough times, a loss of a family member, medical bills, or just something to hold them over until they get paid the next week.
As a Christian and a believer, you have a soft spot for those in need. But what if I told you that those gifts that you are giving could be taxable?
We may have all the good intentions in the world but when it comes to the IRS, they can care less about good intentions. We see this happen with parents who want to bless their children by putting a down payment on a home, paying the college tuition of a child who is no longer a dependent, and sending large checks to the church for annual tithing.
Here are a few things to consider before you give that cash gift to a family member or friend.
What is a Gift?
Before we go into any great details, I think we need to establish what a gift is. I know a lot of us only consider gifts things given on holidays, Christmas, our birthdays, and our anniversaries. Unfortunately, the IRS doesn't see it that way.
They consider a gift "Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return. (IRS.gov)
Also, if there are any stipulations to the gift, such as: you can only get the gift once you graduate college, or when you reach a specific age. Basically, there can be no restrictions on the money.
What are the limits of a gift?
At the time of this writing, an individual can gift up to $15,000 before they have to report it. Now, that is not to say that you have to pay taxes on that money, but you definitely have to report any amount given over $15,000 during the current tax year.
So you may be asking, "If I have someone $15,000.25, I have to report that (.25 cents)?"
Because anything over that amount goes toward your lifetime gift limit of roughly $11.58 million. (Be sure to check with the IRS because these limits sometimes change, year to year)
We will talk about lifetime gift limits in a different blog post.
There are a few exceptions to this rule:
Your spouse- there isn't a limit to how much you can give your spouse. This seems like a no-brainer but the caveat is that the spouse must be a U.S. citizen. If not, there ARE some limits on how much you are able to give before it is no longer eligible for the gift tax marital deduction.
Medical expenses- You can pay someone's hospital bills. But before you pull out your wallet and write a check, make sure you make it out to the provider directly. Unfortunately, you can not make that payment to the individual and hope they do the right thing with it. Also make sure it is for qualified services: medical treatment, medical transportation, and medical insurance
Tuition- This also has to be paid to the institution and typically doesn't cover room and board, books, or school supplies.
What happens when I give to a Church?
Giving to a church is an amazing use of resources. But before you cut a check out of your checking account. Consider looking into your brokerage account. Giving stocks instead of cash is usually always better than cash. Here are some of the upsides:
You don't have to pay the capital gains tax on the appreciated stocks
If the stock is not sold, the value can potentially increase until the funds are used
It can lower your tax liability when you sell or trade the stock
As always, there are some caveats and you will want to check with your church to make sure that they can receive the funds and are appropriately structured, according to the IRS, to allow such gifts. Unfortunately, some church's are not positioned this way, but it is easy to get that qualification. So if your church doesn't, be sure to speak with your pastor or refer them to us, and we will try to help them find a solution that helps you and the fellow church members.
As believers, we want to make sure that we are maximizing our gifting to organizations that we love. What could your church do with an extra 37% by giving stocks instead of cash? How much can be done when one-third of the giving goes to the actual project and not the government? How much more impact can you make, when you just take an extra step in how you give?
The key takeaway here is that gifting is good, but gifting with a strategy is better.
If you still have some questions:
Here is a link to some frequently asked questions about gifting.
If you need help building your gifting plan, see our contact information below:
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About the blog:
Many Christians struggle with the seemingly conflicting views about our faith and the pursuit of financial gain. They were taught that poverty was piety and that a lack of money was the only way to truly detach themselves from the love of money. Our blog debunks some of those claims, teaches you that you can be rich and righteous, and at the same time fulfill your obligation to tithe and give to the less fortunate. We are dedicated to helping you become cheerful givers by organizing your personal finances, providing investment tips to help you create wealth, and encouraging you to create a gifting strategy that will make your family and God proud.
Meet the Author:
A.B. Ridgeway, MBA (email@example.com) is the owner and Christian Financial Advisor with A.B. Ridgeway Wealth Management. With a decade in the finance industry, his goal is to give believers clarity around the most confusing topic in the Bible, money, and tithing. A.B. Ridgeway helps tithing Christians become cheerful givers but unlocking their money-making potential, so they can prosper and be the great stewards of the wealth God has entrusted them with.
This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. This is strictly for information purposes. We recommend you speak with a professional financial advisor.