As the end-of-year holidays approach, you may decide to be extra generous to your loved ones. Specifically, by giving your family members gifts that are usually sheltered by the annual gift tax exclusion. Not only does this reduce the size of your taxable estate, it can minimize the overall income tax bite for your family.
Under the annual gift tax exclusion, you can give each recipient cash or property valued up to $14,000 free of gift tax without eroding any of your unified estate and gift tax exemption. This exclusion is adjusted every year for inflation in increments of $1,000, but hasn’t budged in recent years. The exclusion is doubled for joint gifts made by married couples.
“For 2017, the Estate Tax exemption is $5.45 million per person, so a married couple can shield $10.98 million of assets from federal estate and gift taxes.” – Mike Engleman, CPA
For example, suppose you have three adult children and seven grandchildren. You and your spouse could each give every child and grandchild a gift of $14,000 in December to celebrate the holidays. Then you both could give each family member another $14,000 in January. In just two months, you and your spouse could reduce your taxable estate by a total of $560,000 ($28,000 x 10 recipients x 2 years).
“Assets that you expect to appreciate in value are good candidates for gifting, this removes a potentially significant asset from your future estate” – Rich Middleton, CPA
Normally, you don’t have to file a gift tax return to benefit from the annual gift tax exclusion, but your spouse must consent to joint gifts on a return.
Assuming you’re in a high tax bracket and the recipients are in a lower tax bracket, any subsequent earnings from the cash or property you gift will result in reduced tax
One last requirement to not. “Important to be aware that the person giving the gift is responsible for the gift tax return to be filed. If you are the recipient you do not have a gift tax return filing requirement.” – Chris Cicalese, CPA
Special rules come into play if you give gifts of property that have appreciated or depreciated in value. Call today if you’d like to discuss your situation.
© MC 2017 | “Tax Tips” are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
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