The holidays are a time of goodwill and generosity in gift giving for many families. This year could be a time in which you're ready to surprise a loved one with that big, memorable gift they have always wanted. Maybe you're a grandparent who wants to pay off your grandchild's school tuition bill or maybe you want to buy a car for your parents and present it with a bow on top, just like in the commercials.
Whatever the occasion, it is sure to be memorable. However, with the memories comes a reminder that even large holiday gifts may come with a tax bill. Making plans to accommodate or avoid a tax bill can help keep the focus on giving.
Here are three tips to guide your gift giving and tax planning this year:
1. Mind IRS limits
The IRS limits tax-free gift giving at $14,000 per person. While this can give you significant leeway, it is important to remember if you don't want to pay taxes. If you are an individual tax-filer who gives a gift to another individual tax-filer your limit is $14,000. However, that limit doubles for giving married couples and doubles again for gifts given from one married couple to another.
2. Give directly to the institution
If you want to pay off your grandchild's college tuition bill, who you give it to can make a difference. Paying the bill directly to the school can help you avoid taxation no matter the amount you give. However, if you write a check directly to your grandchild, they will be subject to taxation for any amount over $14,000 no matter its intent.
3. Wait a week between gifts
If you want to give a gift worth $25,000 at the end of December and it just can't wait, you can avoid taxes by waiting until after the New Year. Try giving $14,000 now but wait until after you put up the new annual calendar to provide the remaining $11,000.
If you do give a gift that exceeds the IRS limit of $14,000 per person, remember to fill out a Form 709. For additional tax planning resources, rely on Goldburd McCone LLP to be your guide as holiday season turns into tax season.