Stocks have been battered by the Federal Reserve’s quest to rein in the highest rate of inflation in 40 years.

So far, however, investors have expressed little concern over the crisis that has rocked cryptocurrencies. It’s a far cry from the reaction to Lehman’s demise in 2008, which sparked the financial crisis and nearly wrecked the global financial system.
 
Investing in cryptocurrencies is highly speculative. For instance, legendary investor Warren Buffett has not been shy about expressing his disdain.

​A couple of years ago ​Buffett said, “Cryptocurrencies basically have no value, and they don’t produce anything….

“They don't reproduce, they can't mail you a check, and what you hope is that somebody else comes along and pays you more money for them later on, but then that person's got the problem. In terms of value: zero.”

Bitcoin, the oldest and best-known cryptocurrency, was trading around $65,000 a year ago. Last month, it dropped below $16,000 (MarketWatch).

Earlier in the year, TerraUSD, which is a ‘stablecoin’ that used algorithms to peg its value to the dollar, worked well— until it didn’t and collapsed.

Crypto trading platforms such as FTX and Celsius Network are languishing in bankruptcy, rocked by the digital version of bank runs and a lack of liquidity. Those who hold funds with the likes of FTX, whose demise is being compared to the collapse of Enron, can no longer withdraw funds, and may never see their investments again.

And it’s not simply investors. Celebrities who lent their names to some of these platforms are feeling the fallout through soured investments and lawsuits.

But the storm that descended upon the crypto world has barely made a ripple in traditional financial markets and finance.

“Crypto space…is largely circular,” Yale University economist Gary Gorton and University of Michigan law professor Jeffery Zhang write in a forthcoming paper.

“Once crypto banks obtain deposits from investors, these firms borrow, lend, and trade with themselves. They do not interact with firms connected to the real economy.”

In other words, the dominoes that fell in crypto only knocked down other crypto dominoes.

A recent article in the Wall Street Journal suggested the crisis may have done the economy and equity investors a favor, notwithstanding losses for those in crypto. Eventually, traditional firms and investors would have embraced an industry that lacks regulatory controls. An implosion several years from now could have had far different consequences.
 
I hope you’ve found this review to be educational and helpful. Once again, let me gently remind you that before making decisions that may impact your taxes, it is best to consult with your tax preparer. And if you have any questions or would like to discuss any matters, please feel free to give me a call.
​
As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor

The holidays are a busy time of year. Shopping, family events, company holiday parties and more may dot your calendar. But I suggest that you carve out some time for year-end financial planning so that you will be better positioned as the new year begins.

9 smart planning moves for year-end

1. Review your financial plan. Long-term data and my own personal experience tell me that the shortest distance between investors and their financial goals is adherence to a well-diversified, holistic financial plan. I stress that investors must take a long-term view, but I also recognize that 2022 has been a challenging year. As we build your financial plan, we tailor it to your specific goals.
 
How might you set goals?
 
They should be:
 
Specific,
Measurable,
Achievable,
Relevant (to your situation), and attainable within a specific
Timeframe.
 
These are SMART goals.
 
An adaptable plan
 
A financial plan is never set in concrete. It is a work in progress which can and should be adjusted as your life evolves.
 
Are you reaching a milestone in your life such as retirement? Has there been another upcoming change in your personal circumstances? Whether you have welcomed a new baby or an adopted child into your family, a hearty congratulations is in order— but it’s also time to look at the financial side of the equation.
 
Did you become a grandparent or are there new grandchildren in your family?
 
A job change, job loss, marriage, or divorce are also events that usually warrant revisiting your financial plan. 
 
When stocks tumble, some investors become very anxious. When stocks post strong returns, others feel invincible and are ready to load up on riskier assets. I caution against making portfolio changes that are simply based on market action.
 
Remember, the financial plan is the roadmap to your financial goals. In part, it is designed to remove the emotional component that may compel you to buy or sell at inopportune times.
 
That said, has your tolerance for risk changed in light of this year’s volatility? If so, let’s talk.

2. Harvest your losses and reduce your income taxes. Let’s look at strategies for taxable accounts. If you have gains from the sale of stock, you may decide to sell underperforming equities for a loss and offset up to $3,000 in ordinary income.  

For example, if you sold a stock you have held one year or less and realized a profit of $30,000 and you sold a stock held for one year or less and took a loss of $35,000, you would not only pay no taxes on the $30,000 gain, but you could offset ordinary income of up to $3,000 in 2022 (married couples filing separately limited to $1,500).
 
You would carry forward $2,000 into 2023.
 
Losses on investments are used to offset capital gains of the same type. In other words, short-term losses offset short-term gains and long-term losses offset long-term gains.
 
An asset held for one-year or less is a short-term gain or loss. Anything more than a year is long-term.
 
But don’t run afoul of wash-sale rules. The wash-sale rule prevents you from taking a loss on an investment if you buy the same or a “substantially identical” investment 30 days before or after the sale.

3. Tax loss deadline. You have until December 31 to harvest any tax losses and/or offset any capital gains.  

Did you know that you pay no federal taxes on a long-term capital gain if your taxable income is less than or equal to $40,400 for single or $80,800 for married filing jointly or qualifying widow(er)?
 
Therefore, it may be worth taking a long-term capital gain. Simply put, you sell the stock, take the profit, and pay no federal income tax. And you could re-invest in the stock, upping your cost basis.
 
But be careful.
 
The sale will raise your adjusted gross income (AGI), which means you’ll probably pay state income tax on the long-term gain.
 
In addition, by raising what’s called your modified adjusted gross income (MAGI), you could also impact various tax deductions, impact taxes on Social Security, or receive a smaller ACA premium tax credit if you obtain your health insurance from the Marketplace.
 
Or you might trigger a higher Medicare premium, as premiums are also based on your MAGI.

4. Mutual funds and taxable distributions. This is best explained using an example.                                                                                                                                                                                                                                   
If you buy a mutual fund in a taxable account on December 15 and it pays its annual dividend and capital gain on December 20, you will be responsible for paying taxes on the entire yearly distribution, even though you held the fund for just five days.
 
It’s a tax sting that’s best avoided because the net asset value (NAV) hasn’t changed. It’s usually a good idea to wait until after the annual distribution to make the purchase.
 
Given the volatility in trading this year, some actively managed funds may have large taxable distributions, even though the NAV of the fund may be down since the beginning of the year.

5. It’s time to take your RMD. If you are 72 years or older, an annual required minimum distribution (RMD) is required from most retirement accounts.  

If you turned 72 this year, you have until April 1, 2023, to take your first RMD. That will reduce your taxable income in 2022, but you will be required to take two RMDs in 2023, potentially pushing you into a higher tax bracket next year.
 
If you miss the deadline, you could be subject to a 50% penalty on the portion of your RMD you failed to withdraw.
 
For all subsequent years, including the year in which you took your first RMD by April 1, you must take your RMD by December 31.
 
The RMD rules apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs. The RMD rules apply to all employer-sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans and 457(b) plans.
 
The RMD is also required from a Roth 401(k) account. However, the RMD rules do not apply to Roth IRAs while the owner is alive.
 
Generally, an RMD is calculated for each account by dividing the prior December 31 balance of that IRA or retirement plan account by a life expectancy factor published by the IRS. 
 
If you continue working past age 72, you are still required to take your RMD from your IRA.
 
If, however, you continue to work past age 72 and do not own more than 5% of the business you work for, most qualified plans, such as 401(s) plans, allow you to postpone RMDs from your current employer's plan until no later than April 1 of the year after you finally stop working.

6. Maximize retirement contributions. By adding to your 401(k) plan, you can reduce income taxes during the current year. In 2022, the maximum contribution for 401(k)s and similar plans is $20,500 ($27,000 if age 50 or older, if permitted by the plan).  

The limit on a Simple 401(k) plan is $14,000 in 2022 ($17,000 if 50 or older).
 
For 2022, the maximum you can contribute to an IRA is $6,000 ($7,000 if you are 50 or older). Contributions may be fully or partially deductible.
 
A Roth IRA won’t allow you to take a tax deduction in the year of the contribution, but it gives you the potential to earn tax-free growth (not just deferred tax-free growth) and allows for federal-tax free withdrawals if certain requirements are met.
 
Total contributions for both accounts cannot exceed the prescribed limit.
 
You can contribute if you (or your spouse if filing jointly) have taxable compensation.
 
You can make 2022 IRA contributions until April 18, 2023 (Note: statewide holidays can impact the final date).

7. Convert your traditional IRA to a Roth IRA. The decline in the stock and bond markets has taken a toll on most retirement accounts. However, this may be the time to partially or fully convert the reduced value of the account into a Roth IRA.  

You’ll pay ordinary income taxes on the converted portion of the IRA. But going forward, you won’t have an RMD requirement (based on current law), growth is tax-deferred, and if you meet certain requirements, you’ll avoid federal income taxes when you withdraw the funds.
 
A Roth may make sense if you won’t need the money for several years, you believe you’ll be in the same or higher tax bracket at retirement, and you won’t need to use retirement funds to pay the taxes.
 
Once converted, you cannot ‘recharacterize’ (convert back to a traditional IRA). The deadline to convert is December 31.

8. Charitable giving. Whether it is cash, stocks or bonds, you can donate to your favorite charity by December 31, potentially offsetting any income.   

Did you know that you may qualify for what’s called a “qualified charitable distribution” (QCD) if you are 70½ or older?
 
A QCD is an otherwise taxable distribution from an IRA or inherited IRA that is paid directly from the IRA to a qualified charity. It may be especially advantageous if you do not itemize deductions.
 
It may be counted toward your RMD, up to $100,000. If you file jointly, you and your spouse can make a $100,000 QCD from your IRA accounts.
 
You might also consider a donor-advised fund. Once the donation is made, you can generally realize immediate tax benefits, but it is up to the donor when the distribution to a qualified charity may be made.

9. Finally, take stock of changes in your life and review insurance. Let’s be sure you are adequately covered. At the same time, it’s a good idea to update beneficiaries if the need has arisen.  

I trust you’ve found these planning tips to be useful, and if there are any that you would like some help with, I am always here to assist. Please feel free to reach out if you have any questions or you may want to check in with your tax preparer.

Long-term care includes a whole host of services that you may require to meet various personal needs. And eventually, around ​60% of us will need assistance with things many take for granted, according to the Administration for Community Living, a division of the U.S. Dept. of Health and Human Services.

Whether it is because you have been visited by an unfortunate event or due to health conditions that come about through aging, things like getting dressed, taking a bath, running errands, or making meals may require assistance.

Planning is the key, but many people are not sure what is covered by insurance, and others are often misinformed about Medicare coverage.

Get informed

There are many common misconceptions about what Medicare covers and doesn’t cover.

Medicare only pays for long-term care if you require skilled services or rehabilitative care. But there are limits.

• Medicare will cover a nursing home for a maximum of 100 days. The average Medicare-covered stay is a much shorter 22 days.
• It will also pay if you are at home and are receiving skilled home health or other skilled in-home services. Generally, long-term care services are provided only for a short period of time.

Medicare does not pay for non-skilled assistance with what is called Activities of Daily Living, which make up most of long-term care services. These would include bathing, eating, getting dressed, getting in and out of bed, walking, and assistance using the bathroom.

You will have to pay for long-term care services that are not covered by a public or private insurance program.

However, Medicaid does pay for the largest share of long-term care services. To qualify, your income must be below a certain level, and you must meet minimum state eligibility requirements.

To be eligible for Medicaid, you must have limited income and assets.

The income limit for Medicaid varies by state.

Medicaid will count things such as Social Security and disability benefits, pensions, salaries, wages, and interest and dividends. It will not include food stamps, housing assistance from the federal government, and home energy assistance.

Medicaid will also review your assets, including assets that are counted for eligibility. These include checking and savings accounts, stocks and bonds, CDs, and property outside your primary residence.

However, equity in your home may affect whether Medicaid will pay for long-term care services, including nursing home care and home and community-based waiver services.

Are you considering gifting assets to qualify under Medicaid’s stricter limits? According to the American Council on Aging, the date of one’s Medicaid application is the date from which one’s look-back period begins.  The look-back period is 60 months in D.C. and all states but California, where it is a more lenient 30 months.

That said, if there is just one takeaway, please realize that Medicare coverage for long-term care is limited, and there are hurdles that may prevent you from obtaining Medicaid.

Laws vary depending on the state. If you have additional questions, we’d be happy to assist you.

Paying for long-term care

If you don’t have long-term care insurance or are unable to obtain it, here are some options you may consider outside of Medicaid.

Have you considered a reverse mortgage on your home?

There are no income or medical requirements to get a reverse mortgage, and you must be 62 or older. The loan amount is tax-free and can be used for any expense, including long-term care.

However, if you have an existing mortgage or other debt against your home, you must use the funds to pay off those debts first.

You may live outside the home, including a nursing home, for up to 12 months before the loan comes due. The reverse mortgage could affect Medicaid eligibility but does not affect Medicare or Social Security benefits.

How about a home equity loan? There isn’t a requirement to live in the home, and there is plenty of flexibility in paying the loan back. But beware that the inability to make payments could force foreclosure. And, in today’s rising rate environment, your payment could rise.

Life insurance that includes a long-term care benefit could provide needed cash, while policies with an "accelerated death benefit" provide tax-free cash advances while you are still alive.

The advance is subtracted from the amount your beneficiaries will receive when you pass away.

Are you familiar with a life settlement? A life settlement is the sale of a current life insurance policy to a third party. It’s usually available for those 70 and older.

Although the proceeds are taxable, you could raise cash by selling your policy. The proceeds may be used as you wish, including long-term care.

You may also tap existing assets. Health Savings Accounts can be used to pay qualified medical expenses without incurring a tax liability. Depending on your age, you may take tax-free withdrawals to pay long-term care premiums.

If you have a Roth IRA, you could pay long-term care costs or premiums without paying taxes.

You may invest in a long-term care annuity. You will pay a lump sum of money and receive a set amount of income, paid regularly, for the rest of your life. Long-term care annuities offer special provisions to help pay for long-term care expenses.

The need to access or finance long-term care is an unpleasant prospect most of us would rather not think about. But avoidance is not a strategy.

Be proactive. Be aware of your options. Plan early. As always, I am happy to answer any of your questions or get you pointed in the right direction.

Managing and wrapping your head around health care costs and health insurance may seem like a daunting task.

A financial wellness study by  PricewaterhouseCoopers found that over one-third of baby boomers—38% to be exact—said that the cost of health care is their top fear.
It’s even higher than anxieties generated by the fear of running out of money.

But there are ways to manage costs and reduce surprises as you travel the road into retirement. Let’s look at several ideas.

1. Do you have a health savings account? You may qualify for an HSA if you have a high deductible health plan (HDHP). For 2022, the minimum deductible for an HDHP is $1,400 for an individual and $2,800 for a family. In most states, a tax deduction is allowed for an HSA, earnings are not taxed within the account, and withdrawals can be made tax-free for qualified medical expenses. Take full advantage of your HSA. You may even consider putting it roughly on par with a traditional IRA. An HSA not only allows for tax-free withdrawals for qualified medical expenses, but once you turn 65, you may take a penalty-free withdrawal for any purpose, though you will pay ordinary income tax if not for a qualified medical expense. Penalty-free withdrawals for IRAs begin at 59½. While you can pay Medicare premiums with your HSA funds, once enrolled in Medicare, you lose the option to contribute to your HSA.
    
   
2. Get the right Medicare plan for your needs. Do you want to enroll in traditional Medicare (Parts A—hospital insurance, B—medical insurance and D—prescription drug coverage). Or would Medicare Advantage (Part C that is offered by private companies) be your best choice? Medicare C plans are offered by private companies approved by Medicare and must follow rules set by Medicare. It’s an option for you to receive your Parts A and B coverage. You may be drawn to the advantages of Part C, including benefits for hearing, dental and vision, fitness programs, and the possibility of lower monthly premiums (can vary from $0 to $200+). The maximum in-network, out-of-pocket, is $7550 in 2022.
    
   Be aware that if you have a Medicare Advantage plan that includes prescription drug coverage, you will have a separate out-of-pocket maximum for prescription drug costs. Most Medicare Advantage plans include prescription drug coverage (Part D).
    
   As with most choices in life, you must balance the benefits with any drawbacks.
    
   Are your doctors within your plan’s Medicare Advantage network or could the Part C plan you’ve chosen be discontinued? You may also face limits switching back to original Medicare. With Medicare, you can choose any doctor that accepts Medicare payments.
    
   Choosing the right policy can be a daunting task, and the themes we’ve touched on are meant to provide you with a starting point. If you have questions or would like additional resources, please let us know.
   
3. Be aware of the late sign-up penalty for Medicare. Most of us are aware that Medicare becomes available at age 65. But did you know that if you miss your initial enrollment period (IEP), you will wind up paying a penalty unless you have other coverage that’s similar in value to Medicare (like from an employer)? The IEP spans from three months before the month you turn 65 through three months after you turn 65. It includes the month you turn 65 for a total of seven months. If you miss your seven-month IEP, you may have to wait to sign up and pay a monthly late-enrollment penalty for as long as you have Part B coverage.
    
   Late enrollment penalties are added to your premium—they are not a one-time late fee, and the penalty rises the longer you wait to sign up.
    
   You may also pay a penalty if you must pay a Part A premium. Most people, however, don’t pay for Part A.
    
   You may also be subject to a permanent Part D penalty unless you have coverage that’s similar in value to Part D or you qualify for what Medicare refers to as ‘extra help.’
    
   It sounds complex. However, if you have questions, please let us know.
    
   
4. Consider long-term care. Long-term care can be part of your overarching financial plan. It can be a multifaceted and weighty topic that many delay talking about or planning for. Someone turning 65 stands about a 70% chance of eventually requiring some type of long-term care, according to the Administration for Community Living.
    
   Currently, Medicare only covers short nursing home stays or limited home health care when you require skilled nursing or rehab.
    
   A long-term care policy can provide you with options and eliminate some costly risks, but plans aren’t cheap and the premium may rise. If you choose to purchase insurance, it will depend on what’s best for you, your family, and your ability to pay expenses out of pocket.
    
   If you need long-term care, support usually comes from an unpaid family member or friend, a professional who comes to the home, adult day services, or long-term care facilities.

​
How you decide to approach health care will ultimately depend on various factors that are unique to your situation. I'm here to assist and am happy to entertain any thoughts or questions you may have.

IBM defines cybersecurity as “the practice of protecting critical systems and sensitive information from digital attacks.”

You may not be in the business of defending critical infrastructure from online threats. But fraud, identity theft, and online scams that target your finances pose significant challenges for everyone in today’s digital world.

Armed with knowledge, vigilance, and a healthy dose of caution, you can minimize risks and stay safe online.

Let’s start with SPAM

We’ve all received emails that are obviously fraudulent. Others, however, appear to be legit. Be careful.

The best advise with SPAM is to ignore the email. It may contain links that ask for personal information. The link could be malware, which might provide the spammer with access to sensitive files on your computer.

Another risk is ransomware, which blocks access to files unless you pay a ransom (usually in Bitcoin) by their deadline.

Avoid the unpleasant choice of paying the ransom or losing files. Back up your data on the cloud and/or an external hard drive.

SPAM is also becoming more prevalent via text or instant messaging. Have you ever received an unsolicited text from a major corporation? Maybe it appears to come from Amazon, FedEx, or a well-known corporation.

While some messages provide updates and estimated delivery times, others are generated by criminals, hoping you’ll respond by providing them with personal information.

Let me give you a quick example. “Answer Few Questions Get Paid (dollar emoji).” This was clearly an attempt to defraud unsuspecting recipients. Poor grammar added to its fraudulent tone.

Or, “USP-We are unable to deliver your package due to missing address information, please fill in you address promptly (includes a link).” Yes, UPS was spelled USP, and the link didn’t include UPS embedded within a random string of characters.

How might you sidestep a financial minefield? Don’t give out your email or post it publicly. Never reply since a response informs the spammer that your email or phone number is legitimate.

Think before you click on a link. Download filtering tools and anti-virus software, both for your computer and smartphone.

Social media

Have you received a brief instant message from a Facebook friend that’s worded in a way that doesn’t reflect your friend’s personality but happens to include a link? If so, their account was probably hacked. Confirm by contacting your friend through another platform.

Have you received a friend request from an established friend on Facebook?

In most cases, a criminal has impersonated your friend’s profile. Before accepting the friend request, talk to your friend and make sure it’s legitimate. Some folks have more than one profile on Facebook.

Also, be leery of accepting friend requests from strangers. You don’t know them. Why would they send you a friend request? Consider this: would you give your phone number or address to a total stranger if asked?

Becoming a ‘friend’ with a stranger offers them a peek at your private life.

While we’re discussing Facebook (or, for that matter, social media in general), be careful what you post.

It seems harmless to mention your anniversary, pet’s name, birthday celebration, first concert you attended, or your first job. But these can provide answers to security questions that will give a fraudster access to an account.

Simply put, ignore the public post that asks, “Date yourself. What’s the first concert you attended, or first car owned?”

Watch for online scams

Some scams impersonate official government websites such as Social Security or the IRS.

For starters, the IRS doesn’t send unsolicited emails and won’t discuss tax account information via email or use email to solicit sensitive financial and personal information from you. The IRS initiates contact with taxpayers via regular mail.

​Social security scams are also a growing problem. If there is an issue, Social Security will generally send you a letter.

Callbacks occur only if you’ve requested one.

Scammers may offer to increase benefits, protect assets, or resolve identity theft, but often demand payment via retail gift cards, wire transfers, pre-paid debit cards, or cash.

That is a HUGE red flag! It screams fraud! The Social Security Administration won’t ask for something like a gift card, cash, or pre-paid debit card.

They may also threaten to have you arrested or take legal action if you ignore their overtures.

Just hang up the phone or ignore the email. That seems obvious, but fraudsters wouldn’t be spending time fishing for cash if these scams didn’t work.

Cryptocurrency scams

Scams involving, for example, Bitcoin have proliferated and scammers are looking for ways to cash in.

According to the FTC, no legitimate business is going to demand cryptocurrency in advance or payment in cryptocurrency only.

Are you being pitched a risk-free investment in crypto that guarantees big profits? If you send them money, expect to lose 100% of your investment.

Keep online dating and investment advice separate. If you meet someone on a dating site, and they want to show you how to invest in crypto or ask you to send them crypto, you’re staring down the barrel of a scam.

End contact immediately. They are only interested in mining your savings, not romance.

Dodging identity theft

Consider freezing your credit. When you freeze your credit report, no one can request your report. No one (including you) can apply for a loan or obtain a credit card while your credit is frozen.

Collect your mail daily and review bank statements on a regular basis.

Install and keep anti-virus software updated. This not only applies to PCs. Apple products aren’t immune from malware and viruses either.

Create unique and complex passwords for each account. A good password manager program can easily assist you.

But you may use the ‘default option’ if you use Google Chrome as your browser. Google will automatically supply you with a random string of characters, letters, and numbers and save the password for you.

It’s generally considered to be a safe option and better than recycling a password that you’ve used numerous times (and one that might have been stolen and is available on the dark web).

While we are on the topic of browsers, keep them updated.

Updates not only incorporate fixes, new features, and efficiencies, but more importantly, they include the latest security updates.

Free plug-ins for your browser can also provide an added layer of safety by warning you that a website you’ve clicked on has been compromised by hackers.

Consider two-factor authentication. When you log into an account, a code will be sent to your phone or email that you must input before you can access the account.

Final thoughts

One can’t be completely safe online. But if you are proactive and take the necessary precautions, you greatly reduce your odds of becoming a victim.

Many of the ideas I suggest may seem elementary. But in the moment we open that email, text, or answer the phone, our guard may be down. No one is immune from a momentary lapse of judgment.

​You’ve heard the adage, a penny saved is a penny earned. Well, a healthy amount of skepticism and caution online can pay huge dividends.

An estate plan is an integral part of the financial planning process. It is conceived to carry out your wishes upon death.

Some folks choose DIY, or do-it-yourself wills or trusts. Ultimately, it is your choice, but given the complexity of estate planning, we strongly recommend that you seek guidance from an attorney.

An attorney that specializes in estate planning can lead you through the process and draw up plans that will establish the appropriate strategy for you.

As a part of the process, we will discuss gift taxes and gift giving. Estate planning and gift taxrules are complicated, and this will be a high-level overview. Please consider consulting your attorney or tax advisor for any questions.

Under the current law, the lifetime exemption for gift and estate taxes last year was $11.7 million for individuals and $23.4 million per married couple. For 2022, the thresholds rise to $12.06 million per person and $24.12 million per couple.

The annual gift-tax exemption in 2022 is $16,000 per donor, per recipient, up from $15,000 last year. The recipient may be your child, relative or a stranger.

This means that a giver can give someone a gift that is valued up to $16,000 in a calendar year, and the giver will pay no federal gift taxes. If the gift comes from a couple, the limit doubles to $32,000. Even then, if you exceed the thresholds, it’s unlikely you will owe federal taxes on your gift, as we’ll explain in a moment.

Please note that in 2019, the IRS clarified that individuals taking advantage of the increased gift tax exclusion in effect from 2018 to 2025 will not be adversely impacted after 2025, when the exclusion amount is scheduled to drop to pre-2018 levels.

Because it is a gift, the recipient owes no federal income tax. However, the giver will not receive a tax deduction for the gift. Gifts to a qualified charity may be tax-deductible and are not subject to gift tax limits.

What if your gift exceeds the prescribed limit? Do you, the giver, owe a gift tax? The short answer is probably not.

You see, the annual limit is also applied to the lifetime exemption of $12.06 million per person and $24.12 million for a couple (for 2022).

For example, if Mom gives a $20,000 gift in 2022 to her daughter, Mom exceeds the $16,000 annual limit by $4,000. Taxes can still be avoided. However, Mom would be required to file U.S. Gift Tax (and Generation-Skipping Transfer) Form 709 with the IRS.

You may avoid the gift tax unless you top the lifetime exemption.

If you exceed the lifetime exemption, the gift tax rate ranges from 18% to 40%. Beware of exceptions and rules for calculating the tax. If you are running up against the limit, please consider talking to your tax professional.

What gifts are excluded?

• Gifts that are not more than the annual exclusion for the calendar year.
• Tuition or medical expenses you pay for someone.
• Gifts to your spouse.
• Gifts to a political organization for its use.
• Gifts to qualifying charities.

7 strategies you may utilize

1. Give extra. If you are wealthy and won’t need the assets, consider giving above the annual exclusion. While you will file a gift tax form with the IRS, you may rely on your large lifetime exemption.
2. Give assets that are appreciating, as these assets remove any future appreciation to the estate. But beware of taxes.  When received as a gift, the recipient will usually receive the cost basis of the donor. If the recipient sells, the assets will be taxed on the appreciation as a capital gain. If the gift is inherited, the tax basis will increase to the current value, potentially reducing taxes if the asset is sold. 
3. Gift assets from joint owners. This doubles the amount of the gift without running up against annual exclusion
4. Spread out the gifts over several years. Recipients get all that you want to give them, just over a longer period of time. 
5. Paying for tuition or medical expenses avoids the annual limit. But they must be paid directly to the institution, not the recipient.
6. Be careful. Speak with your attorney or tax advisor if your assets include real estate or business holdings that could generate unwanted tax liabilities without proper planning. 
7. Playing the lottery? Think ahead. Finally, on the outside chance you win the lottery and you decide to share your winnings with siblings, your generosity is commendable. But it’s probably best that you buy the ticket jointly with your siblings or have some type of partnership agreement in place before the winning ticket is purchased. If not, the gift tax could take a big bite of your windfall.

I trust you’ve found this review to be educational and insightful. If you have any questions or would like to discuss any matter, please feel free to give me a call.
​
As always, thank you for the trust, confidence and the opportunity to serve as your financial advisor.