How can a single word cause such great confusion? When it comes to taxes, most of us start in a state of confusion, so each word simply adds to the chaos. When it comes to estate planning, the difference between annual gift tax exclusions and lifetime gift tax exemptions, tends to be one of the most common causes of confusion!
The new estate and gift tax exemption for 2017 is $5.49 million per individual ($10.98 million for a married couple. This means that a couple can leave an estate to their heirs of up to $10.98 million protected from taxes. Gifts throughout the years can be counted against the total overall exemption.
The 2017 changes to the estate and gift tax exemption from $5.45 million to $5.49 million matter more to the wealthy who want to keep their money from hitting the threshold and being subject to the 40% tax.
Most small business owners don’t come close to worrying about such a large estate. However, the $14,000 annual gift exclusion may be of more interest to you!
An individual can give away $14,000 to any number of individuals he or she wants each year and the money is not taxed. For example, if you and your wife have four children, you each can give $14,000 (total of $28,000, in 2017) to each of the children that year (for a grand total of $112,000 that year). Not only is there no tax on these gifts, but the annually excluded amounts do not count toward the lifetime gift exemption.
You can give a series of gifts throughout the year for an allowance or buy a $14,000 car for your son. It doesn’t matter!
Other excluded gifts that are not taxable include tuition or medical expenses you pay for someone, gifts to your spouse, and gifts to a political organization. (www.irs.gov).
For the small business owner, this concept can result in a win-win-win! Yes, three wins! Ultimately the gift results in lower taxable income, resulting in the recipient enjoying more of the funds available because they weren’t taxed, and you probably were going to help foot the bill for their expenses anyway!
Please see full details at www.irs.gov. Please note that this article is for informational purposes only, please contact your attorney or tax professional for details that pertain to your specific situation.