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End of Year Gifting

20141209_110915 (1)It’s that time of year again: presents! Yay! Everyone loves unwrapping gifts and seeing what waits inside (hopefully not a tie or sweater).

What’s the best gift to give? If you ask fifty people, you’d receive fifty different answers. But, from an estate planning and tax viewpoint, what’s the best gift?

Cash is still king. You can gift up to $14,000.00 per year to each person. That money can even come from the same bank account. For instance, a husband and wife can both give their child $14,000.00 from the same bank account each year. I’m sure receiving $28,000.00 would make any child happy. The best part: it’s tax free! Be careful not to exceed the limit, however, as you’ll incur tax.

Aside from cold, hard cash, there are other monetary gifts that make financial sense. If someone is injured and has a large medical bill, you can pay that bill for them. Don’t send them money and have them pay it – that cuts into the $14,000.00 per year. Similarly, don’t give your child money to pay tuition; pay the tuition yourself. When you do this, the money isn’t taxed and it doesn’t count toward the $14,000.00 per year you can gift them.

What about stocks? Stocks and other investments are great tools to further increase wealth. Passing those investments on requires some finesse. You can leave stocks to someone in your will. When you do so, the heir only pays capital gains tax on the increase in value of the stock since your death. So, if you purchased a stock fifty years ago at $10 and when you die it’s worth $100 and the heir sells the stock one year after your death when the price is $110, they owe capital gains tax on $10, the increase in the value of the stock since your death.

Using the same example, if you give the person that stock while you’re alive and they sell at $110, they owe capital gains tax on $100, the increase in the value of the stock since you purchased it. That’s a big difference!

Here’s the best part about stocks: if the recipient is in the 15% or lower tax bracket, no capital gains tax will be due. Let that sink in – no taxes! Therefore, if you give an appreciated stock to a person in the 15% or lower tax bracket, no taxes will be due on the gains from that stock. Excellent? Excellent!

Don’t forget charities. You can gift stocks to a charity and the charity can sell the stock, tax free, and receive the full profit. In addition, it benefits you, the donor. If you owned the stock for more than one year, you can take a tax deduction on the market value of the stock. See, giving can be mutually beneficial!

This is just the tip of the iceberg for end of year giving. Schedule an appointment today to determine the best course of action for you.

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