"Give, but give until it hurts," Mother Theresa once counseled.
Probing the spiritual foundations of such an approach to giving is a bit beyond the scope of this blog. But giving is unquestionably very important for many people in living a good life.
In this post, then, we will take note of some basic principles to keep in mind on how gifts are treated for federal income tax purposes.
First of all, remember that there is a $14,000 annual exclusion for individual filers on the amount that can be given without any need to file a federal gift tax form. The exclusion amount is $28,000 for married couples.
Second as we noted in our August 5 post, gifts can be used effectively as part of an intelligent tax planning strategy. For example, giving to charity allows for a charitable deduction in most cases.
There are also certain types of gifts that are not considered taxable on federal returns. In addition to charitable gifts, these include:
• Gifts to a spouse
• Paying someone else's medical expenses
• Paying tuition directly to a school
To be sure, there are plenty of complicated situations that can arise when using gifts as part of your estate plan or in managing your finances. A tax attorney can provide the counsel you need to make decisions that fit your goals.
Few of us may genuinely follow Mother Theresa's advice to give until it hurts. But most of us can benefit from being aware of the tax implications of the gifts we do give.
Source: IRS.gov, "Frequently Asked Questions on Gift Taxes"