Wednesday, January 29, 2014

IRS Raises Yearly Limit For Tax-Free Gifts

Impt to know - highlighted - Article from 2012

10/18/2012 @ 12:54PM |283,298 views    

IRS Raises Yearly Limit For Tax-Free Gifts


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.
For example, this year a married couple with a child who is married

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.
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
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money in these accounts grows tax-free and can be withdrawn tax-free,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,

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