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What are the tax advantages and disadvantages of $12,000 gifts?
~Judith
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Hi Judith,
At present, a person can make gifts of $12,000 to as many people as he/she likes without paying any gift tax. A person's spouse can join in, with the result that the $12,000 is doubled, even if all the money comes from one spouse. This is a device that is used by people with larger estates, who want to reduce such estates in order to cut down on the estate tax that will be due upon death. Please note that I did not use the term 'death tax', and I hope no one else will either.
So that's the advantage. The disadvantage is that you are out the money. The government has raised the bar a great deal since I first started advising people on maximizing estates after tax, with the result that there are not so many any more that would need my services, if I were still practicing.
Making the best use of these annual exclusions [$12,000] is only one of the methods that can be employed to reduce taxes. It really takes sitting down with someone knowledgeable in the field and deciding what is best in your circumstances.
Rip West
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Hi Rip -
> At present, a person
can make gifts of $12,000 to as many people as he/she likes without
paying any gift tax.
I assume the giver doesn't have to pay a gift tax. Does the giftee
have to pay tax on the gift ... depending on his/her tax bracket and
circumstances?
Thanks, Rip.
~Judith
A person's spouse can join in, with the result
that the $12,000 is doubled, even if all the money comes from one
spouse. This is a device that is used by people with larger estates,
who want to reduce such estates in order to cut down on the estate tax
that will be due upon death. Please note that I did not use the term
'death tax', and I hope no one else will either.
So that's the advantage. The disadvantage is that you are out the
money. The government has raised the bar a great deal since I first
started advising people on maximizing estates after tax, with the
result that there are not so many any more that would need my services,
if I were still practicing.
Making the best use of these annual exclusions [$12,000] is only one
of the methods that can be employed to reduce taxes. It really takes
sitting down with someone knowledgeable in the field and deciding what
is best in your circumstances.
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Judith,
I assume the giver doesn't have to pay a gift tax. Does the giftee have to pay tax on the gift ... depending on his/her tax bracket and circumstances?
It's the other way around. The giftee never has to pay a gift tax. The giver does pay a gift tax if he/she gives more than the annual exclusion. I didn't mention it before, because I didn't want to get into all the complexities of estate/gift tax planning, but even if givers exceed the annual exclusion, there will be no immediate gift tax because every individual is allowed a unified credit against any tax computed on the gift, presently in the amount of $345,000. This translates to being able to give $1,000,000 over and above the annual exclusion during one's lifetime. It should be noted, however, that this credit is combined with the estate tax, so any credit used during one's lifetime will result in a deduction in the credit than can be applied against any estate tax upon death.
Although the giftee doesn't ever pay any gift tax, he/she will, of course, be liable for income taxes on any income the gift earns after it is received.
If you have any more questions, come on back, although I have almost reached the level of my knowledge on this subject, which I haven't visited for a few years.
Rip West
Saint Paul, MN
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