As the year is coming to an end, are you making plans to give?  You could trim both your estate and income taxes with annual giving.  There is an annual exclusion for gifts that allows you to give $14,000 annually to any number of recipients without paying federal gift tax.  Gift splitting allows married couples to double this amount.  A gift of $28,000 is treated as if half came from each spouse.

Giving is a two-way street

While you may be helping out children who need the money with an annual gift, you are also reducing your estate.  Therefore, upon death, your estate will pay less tax.  Aside from annual gift giving, you can currently transfer a total of $5.49 million with no estate or gift tax liability (during your lifetime or through your estate).  Tax savings could be substantial with a consistent program of annual gift giving since you or your estate will be faced with taxes at the top rate of 40 percent for amounts higher than the $5.49 million threshold.

A gift is not a charitable contribution so you will not be entitled to an income tax deduction for gifts to individuals.  On the other hand, a gift does not constitute taxable income to the beneficiary.  Taxable income may be reduced by gifts of income-producing property since the recipient (not you) will receive the income it produces and will pay the income tax.

Giving can be easy

Annual gift giving is relatively easy and flexible.  Giving away cash is especially easy.  Each year you can determine how much you can afford to give.  Cash, stock, art, real estate, etc. can all be gifted.  The valuation is the fair market value on the date the gift is given.  Any appreciation thereafter will belong to the recipient’s estate.

Be certain what you are giving away will not be needed in later years as income for yourself.  Also consider how your resources will be impacted by inflation.

Before you do any gift giving, call our office for professional assistance.  Planning is essential and we can help!

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