Tax Considerations for Gifting PC1411-Print

TAX CONSIDERATIONS FOR GIFTING DURING YOUR LIFETIME

TAX MANAGEMENT

Business Succession Planning

A Guide to Understanding Your Options People often provide gifts to family members and charities during their lifetime. Beyond simply being generous there are various benefits to the donor including reducing current income and future estate taxes. There are certain gifting methods that allow an individual to pass assets to the next generation or charitable organizations in a tax-free manner. SOME KEY OPTIONS FOR REDUCING TAXES WHILE GIFTING TO A PERSON OR ORGANIZATION YOU CARE ABOUT, INCLUDE:

1. ANNUAL EXCLUSION GIFTING TO INDIVIDUALS These include annual tax-free transfers of no more than $14,000 (2017 limit) of cash, real estate, securities, business interest, and/or limited partnership interests made to any individual. Gifting these assets helps a family avoid the gift and estate tax on those assets in the donor’s estate. The gift grows outside of the donor’s estate from that point forward. 2. 529 PLAN CONTRIBUTIONS

GIFT

NO GIFT

Initial Amount

$14,000

$14,000

- Tax

$0

$5,600 (at 40%)

Final Amount

$14,000

$8,400

Contributions to a 529 College Savings Plan grow federal tax-free and will not be taxed when the money is withdrawn by the beneficiary if used for qualified education funding. Many states also offer tax breaks for 529 plan contributions in the form of income tax deductions to residents. Contributions to the plan do not have to be reported on federal tax returns, simplifying your tax reporting, and deposits up to $14,000 per beneficiary per year will qualify for the annual gift tax exclusion. Account owners can even combine five years worth of Annual Exclusion Gifts and could thus contribute $70,000 per donor (in 2017) for any beneficiary in year one, effectively removing those assets from the donor’s estate for estate tax purposes. 3. TUITION AND MEDICAL EXCLUSION GIFTS This type of gift is most relevant when the donor is not a parent of the beneficiary because generally the parents’ payment of these expenses is considered support of the child and not a gift. These gifts are made directly to an educational

GIFT

NO GIFT

Initial Amount for Tuition

$35,000

$35,000

+ Initial Amount for Insurance

$1,500

$1,500

= Total

$36,500

$36,500

- Estate Tax

$0

$14,600 (at 40%)

Beneficiary Amount

$36,500

$21,900

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