It's Time For End Of The Year Gifting
During the recent election it was revealed that president-elect Donald Trump had used very aggressive tactics in order to minimize his tax burden. Not all of us have millions of dollars in business loses that we are able to carry forward for years on end, but most of us do make charitable contributions throughout the year that can reduce our tax burden. By working with a tax professional now, you can figure out whether you are likely to owe taxes for the year, and if so, whether you can offset those taxes by making a charitable donation.
Most people prefer to make a charitable donation instead of paying taxes because they know they are going to have to pay the money one way or another, and giving it to an organization they believe in makes them happier than handing it over to Uncle Sam.
People who expect to die with a substantial amount of assets should be talking to an estate planning attorney as well as their accountant about long-range giving in addition to focusing on the current year. Right now there is a federal estate tax that hits estates worth more than $5.45 million ($10.9 million for a married couple). Some states also tax estates, but Texas is not one of them.
The federal estate tax can be reduced or even eliminated through charitable donations, but many people would also like to leave money or other assets to their family members without having the government take a large chunk of it. In order to minimize taxes on assets that are passed on to family members, advanced estate planning techniques are often needed. However, there is a simple way to pass down a substantial amount of money tax-free, and that is by giving it as a gift today.
Maximizing Gifts, Minimizing Taxes
As you have probably noticed, the government does not send you a tax bill when you get a gift. What you might not know, is that if you give someone a very large gift, you, the giver, might have to pay a gift tax. The current threshold for the federal gift tax is $14,000 in cash or other assets, per recipient, per year.
This means you can gift as many people as you want up to $14,000 this year without paying a tax on that transfer. If you are married, your spouse can do the same, bringing the total tax-free transfer limit up to $28,000 per recipient per year.
It is important to keep in mind that gifts other than cash count toward the gift tax limit. For example, if you are planning on buying a car for your grandchild as a graduation gift, if it is worth more than $14,000 (or $28,000 if you and your spouse are making the gift jointly), you will owe taxes on the gift and any other gifts you give that grandchild over the gift tax exemption limit.
If you are uncomfortable gifting cash to certain people, you can make the gift to an irrevocable trust set up for the person’s benefit, or to a §529 College Savings Plan and get the same tax benefits. You can also gift amounts above and beyond the $14,000 limit if you pay them directly to the beneficiary’s educational institution or medical provider.
Gifting really is the easiest, and often a very meaningful, way to minimize your current tax burden and your future estate tax burden.