Thoughts on Gifting – By John R. Bullis

Kim Pilant Uncategorized

It is easier to give than to receive gifts.

Depending on your circumstances and those of your children or grandchildren, maybe it is time to consider doing some special gifts.

The gift tax ‘Annual Exclusion’ gifts are not taxable for gift tax purposes.  That means the gift does not reduce the death tax exclusion (the amount you can leave behind at death without a death tax).

The ‘Annual Exclusion’ is up to $14,000 of gifts in the year to each person.  Also included is any gift you do for the same person where you pay directly to the educational organization and also to the medical provider.  And, if you pay medical insurance premiums directly to the insurance company for that same person, that also qualifies as an ‘Annual Exclusion’ gift.

The gift could be a major benefit to the recipient.  It could be a big improvement in their quality of life.

The amount of the gift is not an income tax deduction for you, the giver.  It is not taxable income to the person receiving the gift.  I think it is sort of like a Christmas gift.

If your gift is something that earns income, the result is less taxable income for your tax return.  That means you will pay less income tax.  The income will be taxable income for the recipient.  However what if you are paying income tax at the 25% tax rate and the recipient will only pay tax at the 15% (or less) tax rate.  That results in overall income tax savings for the family.

We urge clients to do a ‘love letter’ with the gift.  It is a wonderful opportunity to write how much you love them, how proud of them you are and that it is a gift from love and affection.  Some young people have said the letter was more valuable than the gift.  We don’t write that kind of letter as often as we could or should.

If your gift is used to buy an investment or to do a contribution to an IRA, maybe it will encourage better money management and a habit of saving.  The IRA contribution can only be done to the extent of earned income (wages or profits from a sole owner business).

But most young people find it very hard to do savings or IRA contributions.  Your gift might be a special benefit in many ways.

Did you hear “Families are ecosystems.  Each life grows in response to the lives around it.” Mary Schmich