Being able to provide a loved one with a gift can be a nice feeling when you know that the gift is able to provide more happiness, security, and peace of mind. However, you need to take care in doing so.
When it comes to the gift tax exclusion, the amount allowed per person is $16,000 or $32,000 if the gift is jointly. When an amount is to be in excess, you need to be sure that the gift is maximized so that tax liability is minimized.
Below are 5 gifting tips to be aware of that will help minimize your tax liability.
- Have Gifts Set Aside For Expenses or Tuition
According to the gift laws, the amounts are unlimited when they are used for college tuition (fees and books) or specific expenses such as healthcare.
- Open a 529 plan
When you have a child saving for college, you can help them by opening a 529 plan as part of the estate planning. Besides the 529 being able to qualify for tax exclusions, it also permits a donor to create a lump sum of exclusions totalling $80,000. Having a 529 provides flexibility and the ability to change beneficiaries when you want as well as taking out funds when you want.
- Payments Can Be Made Directly For Bills
When you don’t want to give the money directly to a recipient, you can have direct payments made for expenses. These expenses can include vehicle payments, vacations, or anything else. Having money paid directly is a good idea when you do not feel like handing out cash.
- Decide When the Gift is Made
Although you can give the gift at any time, many wait for the end of the year to make their gifts available. Giving gifts early or later has advantages. When given early, there is a transfer of income that is appreciation-based that comes from the tax return of the donor to the recipient. You can also decide a specific time and given based on how the market fluctuates.
- Provide Gifts That Will Appreciate and Avoid Gifts That Have Already Appreciated
Having cash is nice as a gift, but you will sometimes see that giving property is equally as nice when you expect appreciation. This will help prevent an asset from being liquidated shortly after receiving the gift. Plus, the appreciation will be removed from the estate without worrying about the tax.
When you are thinking of providing gifts to your loved ones, it is important to be aware of the above tips. That way you know that they are received in the manner in which you dictate in the estate plan. If you wish to find out more about gifts, then give us a call today.