It’s the time of giving. Christmas is approaching. We all have relatives and friends that could use a little extra moolah. What better gift to give than a financial gift? But you wonder, oh what, oh what should I give? Before you rush to your ATM machine to withdraw cash, consider giving one of the eight financial gifts below.
- Savings bonds – They earn interest .. thereby giving the recipients a gift that keeps on giving. Interest from all savings bond series are exempt from state and local taxes, and federal tax is deferred until the bond is redeemed.
Series EE bonds pay a fixed rate of interest for up to 30 years. Series I bonds protect against inflation by offering 2 interest rates. The first rate is a fixed rate based on the life of the bond; the second interest rate is based on the current inflation rate, which is updated every six months. You can purchase either a Series EE, or I bond at a bank, or you can buy them online at the Treasury Department.
- Give $12,000 to your favorite family member. You can do this without facing any tax consequences. If you are feeling particularly generous, you can give a $12,000 gift to anyone you want to in a tax year without incurring gift tax penalty. If your spouse is also feeling generous, you can both give the same person, i.e. a grandchild, $12,000 each for a total of $24,000 tax-free. This assumes you and your spouse or significant other are in the money and generous.
- Shares of stock: You can gain a valuable tax advantage from giving shares of stock. When you give shares of stock, you also give away your "holding period" - the time period you held your stock for. So, if the recipient(s) own the stock one day prior to selling, their tax rate will be based on the long-term capital gains tax rate, which will be considerably lower than their current income tax rate.
By giving shares of stock, you benefit - because you avoid paying the capital gains taxes by not selling the stock yourself. However, for optimal results, talk to your tax adviser prior to taking any action.
- Help fund an IRA. Give your immediate family or relatives money to increase their shares of stock (or bonds or other investments) within an IRA. For 2007, investors can put up to $4,000 in a Roth or traditional IRA (or $5,000 if they are 50 or older).
- Contribute to a Coverdell education savings account or a 529 tuition plan. Give the gift of education and give someone a gift for life. Check with the family for details and make sure that limits and other guidelines are met.
- Give a subscription to a financial magazine or newspaper. It can be online or a paper version. I’ll leave the choice to you.
- One share of stock: This is a great way for kids to learn about corporations that they recognize. Disney has a stock certificate with Disney pals on it. A certificate from DreamWorks has Shrek on it. To purchase single shares, check out GiveAShare, OneShare, and SingleShare.
- Charitable Donation: Purchase a gift card in the amount of your choice and the gift card recipient will receive an eCard and/or printed certificate with a redemption code. The recipient goes online and can choose one of 75 charities. This can be purchased at CharityGiftCertificates.
While the holidays are here for a short time, the financial gifts you give to your friends and relatives can positively impact their lives in years to come. Money is great, but knowledge is better. Think about the recipient of your gift, and choose the right gift to enhance his/her life.