Tax-Smart Gifts For The Remaining Days Of Hanukkah

Hanukkah is a time of celebration and generosity. Spreading the gifts throughout the days of Hanukkah helps facilitate greater enjoyment and the expression of gratitude over a longer period of time. And why not have Uncle Sam chip in to make the gifts even sweeter. 

The following tax opportunities can be considered for the remaining 6 days of Hanukkah, and of course, Christmas and other gifting.


Many individuals would like to gift to charities but cannot afford to do this. In most years, individuals who do not have sufficient deductible expenses to itemize their deductions do not qualify to receive a deduction for their gifts. This year, individuals may deduct up to $600 of their donation even if they do not itemize. This temporary tax provision allows single individuals to deduct up to $300 of their gifts, and married couples filing jointly to deduct up to $600.

If you do not itemize and would like to gift more than your deductible amount, consider giving a gift to a friend or a loved one with the suggestion that they gift it to charity. For example, if I were to give my daughter $600 and she gifts that to a charity, then she can receive a $600 tax deduction, saving her $180 if she is in the 30% tax bracket.

Giving to charity feels good. The individuals receiving the gift and making the charitable donation may well become charitable in the future.



Section 529 college savings plans are similar to mutual fund arrangements, except that there will be no tax imposed on dividend or capital gain income received under the portfolio if all withdrawals are spent on qualified educational expenses. Qualified educational expenses include up to $10,000 a year for kindergarten through 12th-grade tuition, college and graduate school tuition, books, approved educational supplies, and living expenses based upon the guidelines of the particular college or university.

There are no tax-prescribed limits on how much can be placed under a 529 plan, and individuals can fund 529 plans for themselves or can ask trustees of existing trusts to fund 529 plans without having contributions be considered to be gifts under the gift tax rules.

If an individual wants to fund a 529 plan for someone else, like a child or grandchild, then the first $15,000 of contributions for each such separate person qualify for the federal annual gift tax exclusion, which will be $16,000 per person beginning January 1, 2022.

Please note that a taxpayer can also transfer significantly more than $15,000 into a 529 plan and elect to consider the transfer to have occurred one-fifth in 2021 and one-fifth in each of 2022, 2023, 2024, and 2025 by making a proper election on a gift tax return (Form 709) due next year. No gift tax will be due and none of the taxpayer’s $11,700,000 estate tax exemption will be used, although this uses up the annual gift tax exclusion for the next 5 years. The lump-sum contributed in 2021 to the 529 plan can grow tax-free with the stock market, as opposed to the taxpayer holding on to the funds, being taxed on the earnings each year, and contributing now after-tax earnings to the 529 plan in each of the years 2021 through 2025.

For example, a 75,000 gift to a 529 plan can be reported as being a $15,000 per year gift to the beneficiary in each of the years 2021 through 2025. All $75,000 will grow tax-free in the plan with the stock market. Had the taxpayer waited to make 529 plan contributions each year, he or she would pay income taxes on the portion of the $75,000 that was not contributed throughout the 2021 to 2025 term. Less money would be available to the beneficiary because total plan contributions did not reach $75,000 until year 5, so all but the initial $15,000 contribution missed out on up to 4 years of tax-free growth.

At a later date, the beneficiary can withdraw funds for permitted educational expenses, free of tax. If the money is withdrawn for anything other than permitted educational expenses, then the income that has built up within the 529 plan will be taxable upon withdrawal at the beneficiary’s income tax rate plus an excise tax of 10%. This is based upon a fraction, the numerator of which is the amount withdrawn and the denominator of which is the total value of the 529 plan.

For example, if the owner withdraws 10% of a 529 plan worth $100,000 that consists of the $80,000 contribution made and $20,000 of growth, then they will only pay income tax on 20% of $10,000 ($2,000 of taxable income) plus an excise tax of 10% ($1,000).

I often wonder why people wait to fund 529 plans or fund them ratably until a child is age 18. Why not put the tax-free feature of the plan into place with the full amount that will be needed to pay for kindergarten to high-school tuition, college, and graduate school, which are always getting more expensive.

Finally, 529 plans are also creditor proof in most states and also allow the donor to absolutely control what has been gifted, so the donor can even change the beneficiary of the 529 plan, once per year.


Many of us are concerned about what the future holds for our loved ones. Many of them may be wondering if they’re going to have enough money saved to retire or if they will have to continue to work. Making contributions to a loved one’s IRA could help them accomplish this sooner, and make it less likely that they will spend money that is given to them.

An Individual Retirement Account (IRA) is a tax-advantaged savings account that an individual makes contributions to save for their retirement. These contributions may be invested in a large variety of assets allowing their savings account to grow. Almost anyone can open an IRA as long as they have earned income, so if someone you love has earned income and has not funded their IRA, consider giving them the money to fund it with.

For 2021 and 2022, the maximum annual contribution permitted is $6,000 if you are under the age of 50. If you are over the age of 50, you are allowed to contribute up to $7,000 per year.

When you open a Traditional IRA, you get a tax deduction for the amount contributed, assuming that you have earned income of at least that amount. If you open a Roth IRA, you do not get a tax deduction for the amount contributed, but the money contributed will be able to grow tax-free for the rest of your life.

In addition, you may have loved ones that work for companies that allow for elective contributions to a 401(k) plan. Ask your loved ones if they are making their full 401(k) plan contributions. If they are not, offer to give them money so they can afford to reduce their paycheck to get the advantage of tax deferral and whatever matching that their employer may offer.


As mentioned above, an IRA is a tax-advantaged savings account that individuals use to save for their retirement. There are several types of IRAs, with the two most common being the traditional IRA and the Roth IRA. The largest difference between the two is the timing of the tax advantage. In a traditional IRA contributions are deducted from taxable income, giving an immediate tax advantage. This allows taxpayers to defer paying income tax on this money until it is withdrawn from the account. Roth IRAs do not receive an immediate tax benefit. The taxpayer is still required to pay income taxes on the amount that is contributed to the Roth IRA account, but when the money and growth thereon is finally withdrawn, it will come out tax-free many years later.

A loved one may have originally believed that a Traditional IRA was the best method to save for retirement at that time but now may gain more benefit from a Roth IRA. Unfortunately, there may be some tax implications standing in their way from being able to convert their Traditional IRA to a Roth IRA.

As mentioned, Traditional IRAs defer taxes until the date of withdrawal. Because of this, income tax has not yet been paid on the money in the account. To make the conversion from a Traditional IRA to a Roth IRA, income tax has to be paid on the value of the IRA account as if it was liquidated. You can help a loved one by giving them what it costs them to pay the taxes incurred as the result of a conversion from a Traditional IRA to a Roth IRA to increase the value of their savings and the probability that they will let this grow until retirement.


Some of our clients will fund relatively small charitable remainder trusts by naming a child or grandchild as Trustee and giving him or her the right to receive an annual payment and to name what charity or charities will receive the remainder interest in the trust after a term of years.

A $100,000 contribution to a charitable remainder trust for a 40-year-old beneficiary that will pay her either 6.292% of the value of the trust every year for her entire lifetime or 10.87% of the value of the trust every year for 20 years will provide a $10,000 tax deduction to the donor that can save $3,700 in income taxes while also providing a disciplined structure that the beneficiary will have to follow to be sure that trust assets are not wasted. If appreciated stocks are given to the trust, then the stock can be sold with no capital gains tax payable by the trust. The beneficiary will recognize the capital gains tax, but only as the monies are paid out to him or her.

For a 50-year-old beneficiary, the distribution can be based upon 7.64% of the value of the trust every year for her lifetime or 10.87% for a 20-year payout term, and the donor’s tax deduction would still be $10,000, saving the donor $3,700 in taxes if he or she is in the highest bracket. 

This is a great way to get recognition from a charity and to provide a valuable financial structure and funding for loved ones.


The $15,000 annual exclusion amount (which will increase to $16,000 in 2022) should not be wasted! Many clients gift directly to children and grandchildren through the methods discussed in Part 1 to Part 5, but it is more effective to gift part ownership interests in limited liability companies, limited partnerships, or certain other entities that can enable the parent or grandparent to retain control of the entity, and also permit valuation discounting techniques.

Further, clients can utilize certain trusts and Uniform Transfers to Minors Act (“UTMA”) accounts to make annual exclusion gifts without giving the child access to large sums of money at a young age. Certain trusts, commonly referred to as Crummey Trusts, can be used so long as the child or grandchild has reasonable withdrawal rights over trust assets. UTMA accounts have to be paid to the child at age 21, are subject to the child’s creditors’ claims at all ages, and can only be spent on the child, not siblings or others who may be more deserving.

There are a number of ways to have Uncle Sam chip in for helping others. Please consider these and checking with your tax advisors when making financial moves. Much of the above has been simplified, so please do get advice before making moves. May the rest of your Hanukkah be blessed, loving and tax-efficient.

We will be addressing smart planning for Santa Claus and how to deduct reindeer in a future blog post.

The Tycoon Herald