5 Simple Ways to Give This Holiday Season

DECEMBER 09, 2015
Setu Mazumdar, MD, CFP
Physicians are the most generous people in this country: we provide medical care day and night to millions of people – often for free. If that forced charity isn’t enough for you this holiday season and you’ve got more money to spare before your next estimated tax payment, here are five simple methods to lighten up your wallet even more:

Method 1: Give away cash

Did you know there are multiple tax systems in the US? A little known one is the gift tax. If you gift a substantial amount of money during your lifetime, you could owe tax on your gifts above a certain limit (right now over $5 million).

Most physicians won’t come anywhere close to that threshold, but you might still have to file a gift tax return even though you don’t owe any gift tax. You can avoid filing the return if you limit your gifts to less than $14,000 this year – per donee.

This means you could give up to $14,000 in cash to a family member, another $14,000 in cash to a friend in need, and another $14,000 in cash to a charity and not worry about filing a gift tax return.

Method 2: Donate appreciated investments

Gifting cash is straightforward and painless but it’s not very efficient.

If you have a taxable investment account – most physicians should if you’ve done a good job of saving – and you’ve experienced significant gains over the past few years, you can donate shares of securities rather than cash.

For example let’s say you invested $4,000 in a mutual fund and now it’s valued at $10,000 for a gain of $6,000. If you sell the fund you would owe about $1,200 in capital gains tax (15% long term federal + 5% state estimated).

Instead, you can donate those shares to a family member who is in a lower tax bracket or to a charity and eliminate the capital gains tax for yourself altogether.

Method 3: Pay education and medical expenses

Say you’ve got a deadbeat nephew who is finally getting his act together and wants to go to college. Your brother can’t foot the bill so he nudges you – the rich doctor – to help out. Rather than risk a family feud, you decide to work a few more night shifts or take more call (lucky you!) and hand over some cash to get them off your back.

Instead of gifting cash to them, you can send the tuition payment directly to the educational institution. This has two benefits: you can gift an unlimited amount of money directly to an educational institution for tuition without worrying about the $14,000 limit and your nephew won’t get the cash directly and blow it on a new car.

That same concept applies to paying medical bills for someone else.

Method 4: Contribute to a 529 college savings plan

This has a number of tax benefits including: possible state income tax deduction, assets grow tax free if used for certain college expenses, and avoidance of capital gains tax for you had you invested the money in a taxable account.

Another benefit: if you got a whopping bonus from high patient satisfaction scores this year (perhaps you doled out more narcs than usual), you can contribute up to $70,000 all at once without filing a gift tax return ($140,000 if married).

Method 5: Set up a donor advised fund

If you want to gift some money now but just don’t know who to give it to, then you can gift the money to a donor advised fund and get a tax deduction on your income tax return this year. Think of the donor advised fund as a charitable account that you gift cash or securities to. You can even invest the money in the account and let it grow. Over time you can specify which charitable organizations receive money from the account and when.

Bonus Method 6: Work more!

If you don’t like any of these ideas, pick up some extra shifts or volunteer for more call (take one for the team and work on Christmas and New Year’s). At least you’ll know you won’t get paid for a good portion of the care you provide – which is just like a donation. Hey, the insurance companies and the government need to fund their operations you know!

Setu Mazumdar, MD, CFP® is board certified in EM and he is the President of Financial Planner for Doctors. FinancialPlannerForDoctors.com

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