For those with more complex financial situations, year-end tax planning isn’t just about reducing liabilities—it’s an opportunity to align financial strategies with long-term objectives such as gifting, estate preservation, and philanthropy. These advanced strategies can help maximize tax efficiency while achieving personal and family financial goals.
1. Take Advantage of Annual Gifting Exclusions
The annual gift tax exclusion is one of the simplest and most effective ways to transfer wealth and reduce the size of your taxable estate. In 2024, individuals can gift up to $18,000 per recipient ($36,000 for married couples splitting gifts) without triggering gift taxes or affecting their lifetime gift and estate tax exclusion. Consider these approaches:
- Family Gifting: Use the exclusion to provide financial support to children, grandchildren, or other loved ones. Gifting assets, such as cash or appreciated securities, can help family members meet immediate needs like tuition, housing, or other expenses while reducing your taxable estate.
- 529 College Savings Plans: Contributions to 529 plans qualify for the annual exclusion and grow tax-free if used for qualified education expenses. A unique provision allows individuals to “superfund” these accounts by contributing up to five years’ worth of exclusions at once—$85,000 per recipient in 2024 ($170,000 for couples). This strategy is particularly advantageous for grandparents looking to support future generations' education.
Gifting strategies not only provide financial assistance but also help preserve family wealth for future generations.
2. Make Qualified Charitable Distributions (QCDs)
For individuals aged 70½ or older, Qualified Charitable Distributions (QCDs) offer a tax-efficient way to fulfill philanthropic goals while meeting Required Minimum Distribution (RMD) obligations.
- How QCDs Work: QCDs allow you to donate up to $100,000 annually directly from your IRA to a qualified charity. The donated amount counts toward your RMD but is excluded from your taxable income, lowering your adjusted gross income (AGI).
- Tax Benefits: Reducing your AGI through QCDs can positively impact deductions, phaseouts, and thresholds for other taxes, such as Medicare premiums.
- Philanthropic Goals: For those who prioritize charitable giving, QCDs allow you to support causes you care about while reaping tax advantages.
QCDs can provide a double benefit—fulfilling RMD requirements while supporting a tax-free transfer to charity, making them an excellent tool for both tax and philanthropic planning.
3. Review Estate and Trust Plans
Year-end is an opportune time to reassess estate plans, ensuring they align with your current financial situation and long-term objectives.
- Lifetime Gift and Estate Tax Exclusion: For high-net-worth individuals, the $13.61 million lifetime exclusion (or $27.22 million for couples) offers an opportunity to transfer wealth tax-free. Consider using this exemption to make significant gifts before it potentially decreases in 2026, when the current tax law sunsets.
- Irrevocable Trusts: Funding irrevocable trusts, such as a Grantor Retained Annuity Trust (GRAT) or a Spousal Lifetime Access Trust (SLAT), can remove assets from your taxable estate while providing ongoing benefits to heirs. These vehicles are particularly useful for transferring appreciating assets.
- Charitable Remainder Trusts (CRTs): For individuals with philanthropic goals, CRTs can generate income during your lifetime while leaving the remainder to charity. They provide an immediate tax deduction and reduce estate taxes.
Proactively reviewing your estate plan ensures your legacy is preserved and aligns with your evolving goals and family needs.
Final Thoughts
By combining strategies like annual gifting, Qualified Charitable Distributions, and estate planning tools, you can achieve meaningful tax savings while fulfilling broader financial and personal goals. These advanced strategies are most effective when integrated into a comprehensive plan that considers your unique circumstances.
With thoughtful year-end planning, you can reduce your tax liability, support loved ones, and leave a lasting legacy, ensuring you close the year on a financially sound and purpose-driven note.
Financial Enhancement Group is an SEC Registered Investment Advisor.
