Tis the season of gifts, and with the end of the year fast approaching, many are looking for ways to address taxes. Did you know that you are able to gift up to $13,000 per donor (the gift giver) to EACH donee (the recipient) annually without having to pay a gift tax? Married couples filing jointly can gift up to $26,000. Why would someone show such generosity? Besides just being a nice thing to do, it also reduces the size of your estate and its tax burden upon your passing.
Regardless of any pending estate tax changes that are slated for 2011, the tried and true strategy of reducing your estate through annual gifting to your children and grandchildren remains a basic and powerful estate planning tool. In addition to annual gift exclusions, payments of tuition to an educational institution for the benefit of your children or grandchildren are also excluded from gift tax, as are payments for medical expenses, provided that these payments are made directly to the institutions.
While the value of the gift, whether it is money or property, cannot be deducted from your income tax returns, the gift is not considered taxable income to the recipient in most cases. But while giving a gift of lower estate taxes sounds like a win/win situation, it is best to work with an estate planning attorney to ensure that these gifts mesh with your estate planning needs and goals.