Morgan Stanley
  • Wealth Management
  • Jan 21, 2022

Tax-Savvy Ways to Give

If you’re inclined to help others, consider these tax-efficient ways to make your giving go further.

Many of us prefer to combine our support for the causes and people we care about with a desire to save on taxes. Fortunately, there are strategies that may help us accomplish both. Whether you want to donate to charity or invest in a loved-one’s future, consider these tax‐smart ways to help make your giving go further.

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Give the Gift of Education

Anyone, including grandparents, can contribute up to $16,000 per year ($32,000 for married couples electing to split gifts) to any individual’s 529 plan, without incurring federal gift tax or using the federal lifetime gift tax exemption. Many states offer state income tax deductions to residents who contribute to their own state’s plan, while some states offer tax deductions regardless of which plan you invest in. Additionally, unique to 529 plans, the federal tax code allows you to front load up to five times the annual gift tax exclusion in a single year.1 Single individuals are therefore able to contribute up to $80,000 per recipient in a single year, while married couples electing to split gifts can contribute up to $160,000 per recipient in a single year.

Reduce Estate Taxes with Financial Gifts

You can gift up to $16,000 ($32,000 for married couples electing to split gifts) per recipient to an unlimited number of individuals per year without incurring a federal gift tax. Note that you can’t carry over unused annual exclusions from one year to the next. The transfers may help your family as a whole pay fewer taxes if you give income-earning property to family members in lower income tax brackets. The $16,000 annual exclusion doesn’t count against the federal gift tax exemption of $12.06 million for individuals or $24.12 million for married couples in 2022. It is noteworthy that gifts in the form of tuition payments made directly to an educational organization, as well as medical expense payments made directly to the provider, are not taxable gifts and do not count against your $16,000 annual exclusion for gifts or reduce your federal lifetime gift tax exemption.

Donate Appreciated Investments

Appreciated investments can be donated to qualified charitable organizations, which would allow individuals to take a deduction in the year the donation is made and avoid paying capital gains tax on the appreciation. Note that donating appreciated investments that you have owned for more than a year can allow you to take a larger deduction than donating appreciated investments that have been held for one year or less.2

Give Through a Donor Advised Fund

donor advised fund (DAF) is one option for gifting appreciated investments. A DAF, such as the Morgan Stanley Global Impact Funding Trust (MS GIFT), gives taxpayers a tax-efficient way to donate stock, mutual funds or other assets and claim a tax deduction.

Utilize a Grantor Retained Annuity Trust (GRAT)

A Grantor Retained Annuity Trust (GRAT) may allow you to pass the appreciation in the value of assets in the GRAT, in excess of a hurdle rate set by the IRS (known as the 7520 rate), to your beneficiaries with potentially little to no federal gift tax consequences. Given the low interest rate environment, this may be an even more attractive opportunity. Speak with your tax advisor to see if this strategy may make sense for you. 

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