One of the most frustrating things about trying to spread around your good fortune to the ones you love is the relatively low ceiling on non-taxable giving. If you’ve been a little too generous before, you know just how infuriating this can be. You just want to give something good to someone you love, and end up giving them a bit of a double edged sword — a generous gift with a tax burden waiting on the other end. Fortunately, with little bit of planning, you significantly expand your ability to give without creating a ta dilemma.
One of the simplest ways to increase your gift ceiling is available to married couples. Under federal law, you and your spouse can both give separate monetary gifts to the same person and combine your gift total each year. For instance, if your gift exemption is $14,000 dollars per person per year, then you and your spouse may give your friend or family member a total of $28,000 each year without triggering a tax burden.
Gift exemptions reset each calendar year, so you may be able to achieve your gift goals by carefully timing when you make your gifts. A common reason for significant gifts between friends and family is making a major purchase, like a new car or a home. I your grandchild is looking at a new vehicle that costs $40,000, you could gift him $25,000 in December and then gift the remaining $15,000 in January. This still leaves you some room for the Christmas and birthday presents in both years, and does not trigger a ta burden.
If you have further concerns about more complex gifts to friends and family, do not hesitate to consult with an experienced attorney about creating or modifying the estate plan that works best for your needs. Proper legal guidance can help you build the estate plan that represents your values and goals.
Source: Findlaw, “Reducing Estate Tax – Gifts,” accessed March 31, 2017