As end of year approaches, it is time for celebration, holiday gifts and tax planning.
Tax consequences often need to be considered when it comes to giving some gifts on holidays while others—small, less expensive gifts—fall under the radar and have no major tax implications. However, what if you want to give something bigger, such as a large sum of money or stocks to a relative to help them out or to lower the eventual value of your estate? If this is the case, then you do need to be concerned about the tax consequences.
This was the subject of a recent CNBC article titled "Smart ways to gift money during the holidays."
If you are considering giving a large cash sum to a relative, then you probably already know about the gift tax exemptions. Did you know the "annual gift exclusion" permits an individual to give up to $14,000 to any one other person in any given year? Did you also know that total "taxable" gifts (those exceeding the annual gift exclusion) cannot exceed $5.43 million during your lifetime? These amounts are doubled for married couples. Going over either of those amounts triggers a tax bill.
If you want to give someone more than $14,000 during the holidays, then you still can without tax penalty if the purpose of the gift is for education or to pay medical expenses. For education the extra amount can be gifted into a 529 savings plan. For medical expenses the extra amount can be paid directly to the provider.
Speak with your estate planning attorney for tax implications including potential capital gains issues when giving stocks or securities to family members.
Reference: CNBC (Dec. 14, 2015) "Smart ways to gift money during the holidays."