We’re occasionally asked by friends, clients and colleagues whether it’s possible to give gifts in a tax-efficient manner.<\/p>\n
The answer generally depends on the value of the gift, the nature of the asset, and who the recipient is.<\/p>\n
Cash Gifts<\/strong> Higher gifting limits may be available for higher education costs paid directly to a qualifying school, as well as for medical expenses paid directly to the health care provider. It should be noted that direct payment of education costs may reduce need-based aid available to the student.<\/p>\n Non-cash Gifts<\/strong> Let\u2019s consider an example. You\u2019re considering giving your adult daughter stock in Company X worth $10,000, which has a $2,000 cost basis. If you\u2019re in the 22% marginal income tax bracket and decide to sell the stock rather than gift it, you would owe capital gains tax of $1,200 on the $8,000 gain, since your capital gains rate is 15%. The higher the marginal tax bracket, the greater the tax would be. If you instead gift the stock and your daughter then sells it, assuming she has $35,000 in W-2 wage income, the additional $8,000 of long-term gain would likely be taxed at 0%, resulting in an overall savings of $1,200. <\/p>\n The value of this strategy depends on the recipient\u2019s income and marginal tax bracket, and will decrease or disappear in relation to their income.<\/p>\n A note of caution<\/strong>: when gifting to children, the \u201ckiddie tax\u201d should be considered. The unearned income of full-time students under age 24 that exceeds $2,200 may be subject to tax at the income tax brackets for trusts and estates, which reduces the benefit of gifts of appreciated assets.<\/p>\n Choosing the right giving strategy can lower taxes for the donor and increase the benefit to the recipient.<\/p>\n Before starting a gifting program, you should consult a qualified tax advisor and financial planner.<\/p>\n
\nGifts of money to anyone \u2013 including a family member \u2013 will not trigger a gift tax return or gift tax if the total amount of all gifts to the recipient is not more than $15,000 during the tax year. If gifts other than cash are made, their value must be included in calculating the $15,000 limit.<\/p>\n
\nGifting appreciated stock may be a good strategy if the recipient is in a low tax bracket for long-term capital gains. The 0% tax bracket on long term capital gain will apply to the 10% and most of the 12% ordinary income tax bracket.<\/p>\n