Tax strategies to consider when making charitable gifts

Future Perfect Planning President and CFP Cristina Guglielmetti joins Yahoo Finance Live to discuss how to maximize tax benefits when making donations or gifts this holiday season.

Video transcript

JULIE HYMAN: Let's turn now to another important part of the holiday spending season-- gifting and charitable giving as well. The annual exclusion amount-- that is the amount that you can gift in this tax year-- remains at $16,000. Charitable donations, meanwhile, remain tax deductible. So let's tell you what you need to know about it. Christina Guglielmetti, who is CFP and president of Future Perfect Planning, is here with us in studio. Thanks for being here.

CHRISTINA GUGLIELMETTI: Thank you for having me.

JULIE HYMAN: So, there's a lot to know about this stuff. So let's take the gifting part of it first. That is when you give people cash as a gift. What do people know? How should they be planning? Also, the holiday season creeps up on you. And then how do you figure out how to deploy cash if you want to give it in gifts?

CHRISTINA GUGLIELMETTI: Yeah, so, as you mentioned, the gift exclusion this year is $16,000. So that means each giver can give each recipient $16,000 this year. And if you are married, your spouse can also give $16,000 to the same person.

So if it's a situation where you're intending to give a big gift, let's say, for-- like, a down payment for a house, something very generous like that, we're close to the end of the year. You may want to give part of that gift this year and part of that gift in January in a few weeks and take advantage of the $17,000. That limit increases to $17,000 next year. So that may be something that would work for people who are giving larger gifts.

And also remember that the gift is never taxable to the recipient. So it doesn't matter how much money someone gives you. You're never going to pay tax on it if you're the recipient of that gift.

BRIAN SOZZI: When it comes to charitable giving, what mistakes do you see people making right now?

CHRISTINA GUGLIELMETTI: Well, one thing-- and I wouldn't call it a mistake-- is, there are a lot of scams out there. So we do need to be careful that if you are going to give money, that-- or any kind of a gift, it's given to a reputable, legitimate organization. So that's one thing to always look out for. Unfortunately, this year is no different. There's always people taking advantage of people's good natures. So that's one thing.

But you can also-- and again, I wouldn't say it's a mistake, but there are some techniques and some strategies. For example, you can give appreciated stock, instead of cash. And that can be a really good strategy. The market is down this year, as we all know. But there are still some pretty big gains from the bull market from prior years.

And for people who are sitting on large appreciated stock gains in mutual funds and stocks in ETFs, you can donate those shares. And that can actually be quite tax efficient. It's even better sometimes than giving cash. And then you can just buy back the same investment if you still want to own it. You can always just buy it back. So that's a strategy. That's a nice little technique that, I think, falls a little bit below the radar that a lot of people don't know about, but that's something that I tend to bring up with my clients a lot.

BRAD SMITH: That's a really good point. And when you think about gifting perhaps a portfolio to someone, what is the best way to go about doing that?

CHRISTINA GUGLIELMETTI: Yeah, so that's a great question. So if you want to gift a portfolio to an individual, it's actually not usually a good idea to do that, to just give them the investments, because the cost basis goes with that gift.

BRAD SMITH: Wow.

CHRISTINA GUGLIELMETTI: So if-- you know, and again, like, I've seen this in situations with lots of clients where maybe they were given shares of stock that their parents or their grandparents bought even decades ago and paid almost nothing for it. But now, all of those embedded gains are still there. So it's a very generous gift, but it may not accomplish exactly what you're trying to accomplish, whereas if you're making that donation to a charitable organization, the nice thing is that that tax gain gets wiped out.

So you give it. There's no taxable gain for anybody to deal with. The organization gets the shares, and they can do with it what they would like. But if it's a situation where you want to give an investment to a person, it may be better to just give them the cash and have them just buy it directly.

BRAD SMITH: Really excellent advice, and we're going to be hitting some of that going into this holiday giving period. Thanks so much for joining us here on set. Christina Guglielmetti, CFP and president of Future Perfect Planning. Thanks so much.

CHRISTINA GUGLIELMETTI: Thank you for all having me.

BRAD SMITH: Absolutely.