Make Giving Part of Your Tax Planning Strategy

This year giving a monetary gift to your spouse, favorite charity or individuals you care about could be one of the best moves you make this tax season. Taking advantage of the gift tax is a smart tax planning strategy if you are in search of ways to help those you care about and save money on your annual tax bill. There are a couple of things to keep in mind when utilizing the gift tax.

How the Gift Tax Works

The gift tax is a tax on a gift of money or property from one taxpayer (“donor”) to another (“recipient”) without expectation of anything in return.¹ The donor assumes responsibility for all applicable taxes associated with the gift and all gifts must be available for immediate use, or part of a living trust. It is important to remember the gift tax exists simply to prevent taxpayers from giving away all of their money before they die in an effort to avoid the federal estate tax. It is also important to note that the federal gift tax and federal estate tax are joined together under the unified credit. They are integrated into one unified tax system and make up the taxable credit portion of your estate when you die. Understanding this fact will help you as you develop your tax planning strategy in regards to any gifts you make now and in the future.

How Much Can You Give Without Being Taxed?

As the donor you are allowed to give monetary or property gifts yearly without being charged the gift tax so long as these gifts to do not exceed the individual annual limit of $14,000.¹ For example, this means you can provide every member of your family with $14,000 each and not be subjected to the gift tax. There is no limit on the number of recipients you can give to, just a limit on how much you can give them.

Any gifts exceeding the set limit will be subject to the gift tax. These taxes can be paid immediately, or put against your lifetime federal gift tax limit of $5.34 million. If you put any gift tax against your lifetime limit, it will impact your final estate tax liability.¹

There are some instances that are excluded from the gift tax completely: 

• Gifts to your spouse 
• Gifts to qualifying charities 
• Gifts to a political organizational for its use 
• Gifts of tuition expenses paid directly to the educational institution on behalf
  another individual(s)
• Gifts of medical expenses paid directly to the facility on behalf another individual(s)

Keeping these simple guidelines in mind you can easily add monetary giving to your tax planning strategy every year while safeguarding your future estate against undue taxation.

If you’d like to learn more about the gift tax, our Wealth Managers are here to help. Give us a call today at 1-800-541-7774, contact us here or learn more about how we might help you.

 Sources:

1. IRS.gov 

The information presented by WrapManager, Inc. is general information only and does not represent tax or legal advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance. WrapManager, Inc. does not advise on any income tax requirements or issues.