November 7, 2014

With the holidays right around the corner, many people are thinking about giving gifts but also about tying up their charitable donations as the tax year winds to an end. It’s important to understand what kinds of gifts you can pass along without there being tax consequences. This is helpful not just as a reminder for holiday gift-giving, though, but for your long term awareness of what saves on taxes and what does not.

Bear in mind that gifts to individuals are not like charitable donations- there are no income tax deductions for gifts that you pass on to other individuals. However, these can be a good tool to pass on investment income away from you and into the hands of family members that are in lower tax brackets. There’s a side benefit related to your estate, too. Passing on gifts to others can minimize the value of your estate that will be taxed at death.

Factor in gift taxes whenever you’re passing on cash and playing Santa, though. For the most part, the gift tax is a high enough value that it doesn’t pose problems for many individuals. Annual exclusions for an individual are $14,000, and this is double for a married couple. And it doesn’t matter if you’re contributing the entire $28,000 or whether you and your spouse are splitting this gift to one person- the exclusion protects you all ways around.

Some people have the misconception that they can only give away up to $14,000 per year, but this is on a per-year, per-person basis. If you wanted to, you could pass on the individual or married couple amount to each of your grandchildren, children, other relatives,or friends.

If you’re intrigued by what other strategies can aid in your long-term planning, contact our estate planning professionals today at info@lawesq.net.