This is another optimization post, which means it’s not essential for the core part of your financial success, but can be incrementally helpful on the margins. Like many posts on this blog, it also assumes a fair amount of privilege.
For many folks who have figured out financial literacy (in one sentence; in many sentences), there comes a time when you have “enough.” And by the nature of what they’ve done to get there, as well as the nature of compound interest, they usually find themselves with “more than enough” fairly soon thereafter. These folks then often begin to think about how to share the wealth (literally), either through gifting to folks they know and love or giving to charities and organizations that they think will do some good with it. Through a combination of luck, financial knowledge, working reasonably hard, and making good financial decisions (and all of those interact with one another), we currently find ourselves in this position. As with most things financial, taxes play a role, so I thought I’d share how we approach gifting and giving with taxes in mind.
As with everything I write about, I’m not necessarily an expert. There are likely additional strategies you could pursue that I’m unaware of, but what I’m sharing should hopefully be helpful for many folks.
Gifting
I’ve written previously about some of the ways we are are helping our daughter through gifting. But one thing I didn’t address was the specific rules around gifting as well as some of the strategies you might pursue from a tax perspective. Many people think that the IRS limits what you can give your kids (or anyone). They are correct, there are limits, but those limits are very unlikely to come into play for anyone reading this post. The first limit to be aware of is that in 2026 (the limit sometimes changes from year to year), each person can gift up to $19,000 to any other person with no tax implications (and no forms to submit). So for my wife and I (that’s two people), we can gift our daughter up to $38,000 in 2026 with absolutely no restrictions. (You can gift up to $19,000 per person to as many people as you want, but I’ll just focus on our daughter. Sorry if any of you thought you would be in the running.) While $38,000 is a lot in one year, some folks might say that they could see exceeding that (or at least someone they know exceeding that) in some circumstances (for example, to help with a down payment on a house). This is where the second limit comes in, the lifetime gift and estate tax exemption. That number is currently $15 million (per person, so $30 million for my wife and I to as many people as we want). That’s why I said most folks reading this really don’t have any meaningful limits. If you (as an individual) give more than $19,000 to a single person in a given calendar year, you still don’t owe any taxes, but you do have to file IRS Form 709 so that they can keep track of your lifetime gifts (including your eventual estate) to ensure you don’t exceed $15 million total to that one person. I’m not sweating that one at the moment.
So far we have just gifted our daughter “cash” (transferring money digitally to her accounts, often to provide the “match” for her 401k and 457b contributions), and there’s nothing wrong with that. But you are also able to gift others appreciated shares in investments (like stocks and bonds). When you gift shares, it’s not a taxable event, but the cost basis (and the unrealized capital gains) get transferred to the recipient. So this could conceivably make sense for some folks, either because you want to give more than the cash you have available, or because the recipient is in a lower capital gains tax bracket and/or state tax bracket. This is most likely a good option if you are in the 15% or 20% capital gains tax bracket and the recipient is in the 0% capital gains bracket, or if you (or the recipient) live in a state where their state income tax rate is much lower than yours (because capital gains are typically taxed as ordinary income at the state level).
Note that for some children you might have to worry about the “kiddie tax”. That’s beyond the scope of this post, but essentially if your child is under age 25 there are some details you have to pay attention to in terms of the income those gifted shares throw off each year if the recipient doesn’t sell them right away.
But it’s also important to consider the step-up in basis that appreciated investments (shares, property, etc.) get at death. For us, it doesn’t make sense (from a tax perspective) to give appreciated shares because it looks like we will end up holding them until death, at which time our daughter will receive them. At our death, she will get a step-up in basis so will owe no taxes on the unrealized gains at either the federal level or the state level. The same is true for our house if we are still in it. For those who are in a position to not spend down these assets, keeping them until death can be a smart gifting and tax strategy (with the minor downside that you have to die).
Giving
In addition to gifting to individuals, many folks will also want to give to various charities, and there are a variety of ways to do that in tax aware ways. First, new in tax year 2026 is the ability to deduct up to $1,000 (single) or $2,000 (married filing jointly) of cash donations to charities even if you take the standard deduction (which ~90% of people do, although that may decrease a bit due to the increase in SALT deductions). For my wife and I, who are in the 22% marginal federal tax bracket and with a 4.4% flat Colorado tax, a $2,000 deduction would only end up costing us $1,472 (because of the $528 in tax savings).
If you itemize deductions, you can deduct more than that amount (and it doesn’t have to be just cash), but it is subject to a 0.5% of your AGI floor (meaning you can only deduct the amount of contributions above 0.5% of your AGI). For folks who are itemizing anyway and making large donations, this can allow you to claim even greater tax savings. It also opens up the possibility of gifting appreciated shares (although not all charities are positioned to accept those, especially smaller ones). If you gift appreciated shares, you can deduct the current value of the shares (including any unrealized capital gains), not pay taxes on the unrealized gains, and the charity will also not have to pay taxes on the unrealized gains.
Another approach for taxable investments is to create a Donor Advised Fund (DAF). These are funds (typically held at a brokerage) that are designated for charitable giving that you can transfer assets into. It has the same advantage as donating appreciated shares in that you can deduct the full value of the transfer and you won’t owe any taxes on unrealized capital gains. An additional advantage is that once the shares are in the DAF, you can sell some of them and go to cash, allowing you to contribute to charities who can’t accept donated shares. DAFs are particularly attractive for folks who want to make donations over time, as you can make a large transfer to the DAF in one tax year (allowing you to itemize deductions and get a large tax break), but then disburse the funds over as many years as you’d like. Keep in mind there’s no way to get the funds “back” once they are in the DAF; while you still have control over where the funds get distributed, the assets are no longer “yours” but must be given to charity. Many brokerages, including Vanguard, Fidelity and Schwab, offer DAFs, although the fees are a bit higher than I would like to see. Daffy is an alternative you might consider which has lower fees.
Once you are age 70.5 or older, you can also make Qualified Charitable Distributions (QCDs) from your pre-tax IRA. While you don’t get a tax deduction for this contribution, you do not have to pay taxes on the distribution like you normally would. This effectively saves you the federal and state taxes you would’ve paid on any distribution and also lowers your future Requirement Minimum Distributions (RMDs). The charity also doesn’t pay taxes, so they receive the full value of the distribution. The annual limit is indexed to inflation, but is currently $111,000 (per person, so $222,000 if you are married, although $111,000 is the limit for each individual’s account).
What Are We Doing?
As previously indicated, we are front-loading our daughter’s inheritance by gifting her money now, using up a good portion of the $19,000 (each) annual gift limit. This is allowing her to put a large portion of her paycheck into a Roth 401k (and a little bit into a traditional 457b), invest some in her taxable brokerage account, and max out her Roth IRA (which we are currently doing by transferring money from her 529). We also will have money left over in her 529 that we will likely end up transferring into a 529 for my niece and nephew or to our daughter’s child(ren) if she has them. She also will inherit (when the second one of us dies) whatever is left in our taxable accounts (with a step-up in basis), our Roth accounts (tax free), our pre-tax accounts (taxable on distribution), and any property we own with a step-up in basis (currently our house).
On the giving front, we’ve always made small cash contributions to various causes as well as donated items to charities, but we haven’t made any large gifts (yet). With the new up to $2,000 deduction for cash donations (for married filing jointly) in 2026, we will likely make sure to give that amount each year going forward. At this point we don’t anticipate creating a DAF, both because we anticipate holding our taxable investments until death (so they’ll get a step-up in basis for our daughter) and because we have a fair amount in pre-tax accounts that we are unlikely to ever need. While those also will eventually go to our daughter, they are the least tax efficient, so we will start making larger donations to charity by doing QCDs at age 70.5. This allows us to optimize (from a tax perspective) both our gifting to our daughter and our giving to charity.
Many people are charitably inclined and generous with their donations. By choosing strategies that are more tax-aware, you can effectively give even more to both individuals and to charities.
Fisch Financial 