TAX ADVANTAGES TO GIVING ANNUAL GIFTS
Giving annual gifts can be very advantageous to taxpayers with regard to estate
planning initiatives. Taxpayers can give $11,000 annually to any number of recipients
without being subject to the federal gift tax. Married couples can give $22,000
annually by gift splitting, where a gift of $22,000 from one spouse is seen as
though it came as a result of each partner giving $11,000.
Gifts do more than help poor and needy children. They also reduce the taxpayers
estate so that any heirs making claim to the estate will pay less estate tax
when the estate holder passes. Apart from annual gift giving, taxpayers can
transfer as much as $1,000,000 during their lifetime or through their estates
with a unified credit of $345,800, with no estate or gift tax being levied.
Since sums above this amount can oblige the taxpayer, or the taxpayer's heirs,
to pay taxes on the excess at rates as high as 55 percent, a program of annual
gift giving can generate substantial savings.
However, taxpayers should be advised that gifts to individuals do not entitle them to any income tax deductions. Since a gift is not a charitable contribution, it will not generate any taxable income exposure to the recipient. However, gifts of income-producing property may reduce a taxpayer's taxable income. Once the contributor loses possession of the property, it is the recipient and not the contributor who
receives any income generated by the property and, consequently, any tax liabilities associated with it.
Another advantage to annual gift giving is that it is very easy to do, particularly if the taxpayer is giving away cash. Flexibility is yet another advantage. Taxpayers are not under any predetermined obligation and can give only what they choose to give or can afford. Taxpayers giving away non-cash gifts, such as stocks, works of art, and/or properties, should know that the valuations of these gifts are determined by
fair-market values, at the times that the gifts are given. If these gifts appreciate in value, the tax burdens, if any, will lie with the donees' estates.
Taxpayers are advised to be certain that they will not need any income from donated assets in the future, before giving them up. They should also consider the affect that inflation will have on their resources. As proper planning is essential in this area, taxpayers should seek the guidance of a tax professional before
making any concrete decisions about giving gifts.