Giving to charity, or to loved ones while you are alive, is an important aspect of many estate plans. Those wishing to give these type of gifts, in a tax efficient manner, and wish to help reduce estate taxes, should consider gifting throughout their lifetime.
Currently, the IRS allows any person to gift up to $14,000 each to as many number of persons in a single year without incurring a taxable gift. This $14,000 annual exclusion allows one to gift without owing taxes on the gift, or requiring reporting (unless the money is coming from a foreign source). If you gift over the $14,000 exclusion, you must file a Gift Tax Return. Additionally, spouses splitting gifts are required to file this Gift Tax Return even when no taxable gift amount is incurred. One major loophole is that it is possible to make unlimited payments directly to medical providers or educational institutions on behalf of others for qualified expenses. These gifts, as long as paid directly to the facilities and not a natural person, are generally not considered a taxable gift, or require the filing of a gift tax return.
Another thing to consider is gifting highly appreciated assets to charities during your lifetime and receive an income tax deduction for the donation, while bypassing the capital gains tax that would be owed if you cashed in the assets yourself. However, donors have aggregate lifetime exemptions, which in 2016 was $5.45 million each person during their lifetime and still avoid gift tax. This number applies to gift and federal/ state estate taxes combined.
Gifting is just one way to give meaningful financial support to those you love during your life and after your death. Feel free to call us at (404) 260-1901 to discuss a strategy to maximize your donations while minimizing taxation.