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Give the Gift of Money This Holiday Season

But, Know Your Limits…

When you’re racking your brain trying to come up with a gift idea for your niece or your grandson, something they won’t be likely to re-gift, think outside-of-the-box and into your billfold. Cash. It might seem like an easy way out, but what could be more appreciated for a struggling college student than money to help cover the high cost of tuition, books, or even food? What could be more needed than a gift of cash to help a first time homebuyer with a down payment?

But depending on the size of your monetary gift, you may need to consider more than just which pen to use to sign the check.

Each year, one can gift $14,000 to any recipient.  Why just $14,000? Because any gift more than that comes with IRS reporting requirements. Form 709 is filed for information on any gift that exceeds the $14,000 threshold.

Accountants are often asked “who pays tax on the gift?” For most individuals/estates, this never becomes an issue, and the answer is “no one.” Without reporting requirements, an individual can reduce the size of their estate by $14,000 a year – multiply that amount by the number of heirs that they have, and it can start to impact the potential tax liability of their estate in a favorable way. This is especially helpful if their estate is over the threshold for being taxed. ($5,430,000 in 2015, and $5,450,000 in 2016.) Keep in mind that for a couple, they can EACH give EACH recipient $14,000 – so $28,000 per heir, per year.

Why file an information report? When the giver dies, those “information” returns become relevant. (Before, if one gives away more than the allowable estate exclusion, but let’s keep it simple here.) The excess amount over the allowed gift reduces the estate exclusion amount. If the estate is less than the allowed exclusion, nothing happens. However, if it is more, the amount that will be taxed is increased.

For example, say you give away $100,000 over the annual exclusions over your life, and you die in 2016 leaving $6,000,000 in your estate. Your exclusion will be $5,350,000 ($5,350,000 – $100,000), so your taxable estate would be $650,000 ($6,000,000 – $5,350,000). If you hadn’t given away that money, your taxable estate would have been $550,000 ($6,000,000 – $5,450,000).

As you can see, it can get a little complicated.

Navigating the nuance related to gifting large sums of cash to relatives, or others,  during the holidays can be tricky, but don’t let this dissuade you from sharing what you’ve earned with those you love, with those whose ideals you support, and with those less fortunate.

Also, don’t forget that gifts to your church and other qualified charitable organizations can be used as an itemized deduction on your tax return. You can help your favorite charity and enjoy tax savings, too! What a deal?

One of our experienced certified public accountants at Burdette Smith & Bish LLC would be happy to discuss your plans for gifting.

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