There is an old saying that "nothing in life is guaranteed except death and taxes." While this may be true, there are some steps that you can take that will help you avoid some taxes upon your death. One of these steps is gifting. Not only will gifting help you to avoid taxes, if done correctly, it may help you pass your estate on to your children before you die.
529 College Savings Plans
Almost every parent dreams of their child going to college. Unfortunately, sometimes getting the funds in place for them to do so can be a challenge. One of the easiest ways to do this is by setting up a 529 college savings plan. This plan allows you to make regular deposits in the plan that will grow tax deferred. Once this money is needed to pay for a higher education, it can be withdrawn federally tax-free.
This can be a great location to place large gifts of money, which are designated for a specific cause. While there is no federal income tax deduction on these funds, many states will give you credit for some, or all of your donation.
For example: the first $14,000 per donor per child is excluded from any type of gift tax, and the 529 allows that you can also front-load five years worth of money at a time. This means that if you, or a grandparent, can gift up to $70,000 at a time every five years towards the cost of a higher education for each person.
If your child receives a full-ride and does not have college expenses, no problem. You maintain control of the account. This allows you to change the beneficiary. You can change it to anyone else in the family, including yourself.
Maximizing Your Annual Exclusion
If your children, or grandchildren have already completed college, or a 529 plan does not interest you, you can give them other types of gifts tax free. Everyone currently has a $14,000 annual tax exemption on gifts. This number is determined by the Internal Revenue Service, and is subject to increase as the cost of living increases.
This means, that you can give away an unlimited number of gifts of money and property, as long as they do not exceed $14,000. If you are married, this number rises to $28,000 even if only one of you is actually funding the gift. Always keep in mind that these gifts are based on a calendar year.
So if you want to give someone a gift that will exceed this amount, consider giving them part of the gift prior to December 31st, and then giving them the balance after January 1. This is a great way to pass ownership of property, or other valuable items to your heirs prior to your death.
To learn more, contact a company like Auton-Beck Betty A Professional Law Corporation with any questions or concerns you have.