Impt to know - highlighted - Article from 2012
10/18/2012 @ 12:54PM |283,298
views
IRS
Raises Yearly Limit For Tax-Free Gifts
Deborah L. Jacobs, Forbes StaffAs the article indicates, annual
exclusion gifts don’t count against the $5.12 amount that you can pass tax-free
during life. Deborah L. Jacobs, Forbes Staff$26,000 for 2012; $28,000 for 2013
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Starting in 2013, the annual exclusion for gifts
went up to $14,000, from $13,000.
Updated Oct. 31, 2013 to include the numbers for
2014.
The yearly limit on how much we can each give
another person without having to worry about gift tax in 2013 is 14,000. This
limit, known as the annual exclusion, will not
be increased for inflation in 2014. Spouses can combine their annual exclusions to
double the size of the gift.
and has two children could make a joint cash
gift of $28,000 to the
adult child, the child’s spouse and each
grandchild – four people –
providing the family with $112,000 a year.
Gifts that exceed the limit count against the
lifetime exclusion, which
this year is $5.25 million ($10.50 million for
married couples). After that,
a gift tax of up to 40% applies.
Feeling very generous?
Write two checks: one before Dec. 31 for $14,000,
and the other on Jan. 1.
for $14,000.
If you exceed the limits, your your gift counts
against the $5.25 million
per-person exclusion from the federal estate and
gift tax.
That exclusion goes up to $5.34 million in
2014.
(See my post, “IRS Raises Limit On Tax-Free Lifetime Gifts.”)
It you give away more than that during life,
you could wind up owing gift
tax of up to 40%. Even if you don’t, your lifetime gifts would
reduce how
much you can pass tax-free through your estate
plan.
While generosity with family members often occurs
under the radar, the
law is clear: if the gift exceeds a certain value
and the Internal Revenue
Service catches it, you could be forced to pay
the tax as well as interest,
and, in some cases, penalties.
The simplest way to use the annual exclusion is
to give cash or other assets
each year to each of as many individuals as you
want.
Another possibility is to put money in Section
529 education savings plans.
Establishing these plans for relatives could
relieve siblings or children of the
need to save for college at a time when they are
overwhelmed with current
expenses.
You can set up a separate account for each family
member whom you wish
to benefit.
Although your contributions to a 529 account
are considered gifts, there are
two unusual benefits:
money in these accounts grows tax-free and can be
withdrawn tax-free,
provided it is used to pay for college, a
graduate, vocational or another
accredited school, or for related expenses.
For a discussion of how this affects financial
aid and other issues, see my
FORBES magazine story, “Collegiate Confusion.”
Another holiday gift idea:
give family and friends a museum membership. Yep,
there’s a tax angle, as
I wrote here. If you want to provide more substantial
help to folks who’ve
been hurt by the financial crisis, see my posts,
Forbes
Thought Of The Day
“ If you want to succeed in the
world you must make your own opportunities as you go on. The man who waits for
some seventh wave to toss him on dry land will find that the seventh wave is a
long time coming. ”
— John B. Gough
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