Make the Most of the Federal Annual Gift Tax Exclusion

Taxpayers that are looking to pass wealth to beneficiaries without any dire tax consequences can use the simplest and easiest method: give cash or property away to your loved ones. 

All you have to do is make gifts to family members that are covered by the annual gift tax exclusion.  In many cases, you don’t even have to file a gift tax return.

Such gifts can reduce the size of your taxable estate and the family may realize income tax savings in the future.  There is a downside, though: you have to relinquish complete control over the gifted assets.   

Under the annual gift tax exclusion, you can give gifts of cash or property to someone up to a specified amount without paying any federal gift tax.  The annual exclusion, which is indexed for inflation in increments of $1,000, is $14,000 for 2014 (the same as it was in 2013).  It is projected to remain at the $14,000 level in 2015.

The exclusion is applied on a per-recipient basis.  For instance, you can gift the maximum amount to a sibling, child and grandchild, or several of these, in the same tax year with no gift tax problems.  Furthermore, the annual $14,000 exclusion is doubled to $28,000 for joint gifts made by a married couple.

By using the exclusion judiciously from year to year, a married couple can easily transfer amounts valued into six figures, all on a tax-free basis.  You don’t have to file a gift tax return to benefit from the annual gift tax exclusion, but your spouse must provide consent to joint gifts on a return.   

The recommended approach overall is that when possible, limit your lifetime gift-giving to amounts covered by the annual gift tax exclusion.

For more tips on giving and to read the entire article, please visit www.accountingweb.com.