gift tax - Linkenheimer LLP CPAs & Advisors

Consider All the Tax Consequences Before Making Gifts to Loved Ones

Many people choose to pass assets to the next generation during life, whether to reduce the size of their taxable estate, to help out family members or simply to see their loved ones enjoy the gifts. If you’re considering lifetime gifts, be aware that which assets you give can produce substantially different tax consequences.

Multiple types of taxes

Federal gift and estate taxes generally apply at a rate of 40% to transfers in excess of your available gift and estate tax exemption. Under the Tax Cuts and Jobs Act, the exemption has approximately doubled through 2025. For 2018, it’s $11.18 million (twice that for married couples with proper estate planning strategies in place).

Even if your estate isn’t large enough for gift and estate taxes to currently be a concern, there are income tax consequences to consider. Plus, the gift and estate tax exemption is scheduled to drop back to an inflation-adjusted $5 million in 2026.

2012 Year-End Tax Planning Takes a Different Direction

Each year we meet with our clients to review their projected taxes for the year and see what actions can be taken to minimize their tax liability. The usual actions are to defer income to the following year, accelerate deductions into the current year, and take advantage of tax credits. This year, the year-end tax planning process is turning in a different direction.

With the looming expiration of many tax deductions and increase in tax rates that begin in 2013, some clients are considering taking a reverse course by accelerating income and deferring deductions as a plan to minimize taxes. In addition to changes in the income tax code, unless Congress passes new legislation, the estate taxes are dramatically changing in 2013. Until December 31, 2012 each person can make gifts during their lifetime of up to $5,120,000 without incurring a gift tax. Starting in 2013, unless new legislation is passed, the lifetime exemption drops back to $1,000,000. This exemption is in addition to the annual exemption on gifts of $13,000 or less.

As year-end is quickly approaching, now is the time to review […]

By Linkenheimer LLP|2020-09-03T20:05:58+00:00October 4th, 2012|2012, CPA, credit, filing deadline, gift tax, liability, Linkenheimer, planning, Santa Rosa, taxes, year-end|0 Comments

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