Financial gifts now can reduce estate taxes later
Thursday, December 12, 2013
Christmas is less than two weeks away. I must admit that the holiday has sneaked up on me this year, but I'm finally getting into the spirit.
And as a tax geek, that means that some -- OK, a lot -- of the holiday trappings remind me of taxes.
Take, for example, Christmas carols. Listening to them at a holiday party this past weekend naturally brought to mind some tax provisions.
That's right. This is just the kind of thing the hubby lives with, even at this special time of year. You can send your words of sympathy for him to me and I'll make sure he knows of your support.
Since it is the season of giving, I just have to share my musically inspired tax tips. For the next 12 days -- yes, just like the 12 Days of Christmas, although that iconic Noel is not one of the tax-related songs I've chosen (but it was the basis for 2009's 12 year-end tax tips) -- I'll post a carol and some tax thoughts it inspires.
So, without further ado, let's strike up the band and get the Christmas Tax Tip Tunes playing. I'll post all the tunes and tips on a special page as a sort of a blog iTaxTunes playlist.
We start with We Three Kings and ways to reduce your taxable estate.
Rich men bearing gifts: We Three Kings is one of my favorite Christmas carols, primarily because it's in a minor key. See, Mr. Gilligan, I did pay attention during high school band sessions!
In this undated Australian television performance of We Three Kings via YouTube, David Hobson (gold robe) is Balthazar, a very young Hugh Jackman (purple) is Melchior and Peter Cousen (red) is Casper.
In the song, Kings Melchior, Caspar and Balthazar, also known as the three wise men or Magi (not the tax term, but that's another holiday tax connection bonus), announce the gifts each presents to the Baby Jesus.
Naturally, the combination of the kings' wealth and gift giving made me think of the estate tax.
Reducing your estate tax via gifts: While few of us will have royal wealth that might be subject to the federal estate tax, if that does happen there are ways to protect your money from Uncle Sam.
This is particularly important if your estate will be over the threshold which will trigger the estate tax. When the American Taxpayer Relief Act of 2012 (aka the fiscal cliff tax bill) made the federal estate tax permanent, it also provided for the indexing of the estate tax exemption amount to inflation.
For the 2013 tax year, it's $5.25 million and $5.34 million in 2014.
One way to get your vast holdings under the exemption limit is to give some of your riches away while you are still around to receive thanks for your generosity.
For tax years 2013 and 2014, each person can give away $14,000 to anyone -- family member, friend or stranger if you're so inclined -- and not face any gift tax ramifications.
The $14,000 is not the total you can give. It's per person.
And if you're married, both you and your spouse can give 14 grand to whomever you like. That means y'all can give a total of $28,000 to your daughter, your son, your daughter- and son-in-laws, all six of your grandchildren, your five siblings, your hairdresser, your maid and your landscaper. Those 18 financial gifts take $252,000 off your estate value helping to keep it below the estate tax trigger amount.
You don't have to give money. You also can give a piece of jewelry or art valued at $14,000.
If you need to shave a few more dollars off your estate, let me know and I'll be happy to send you the address to which you can send my (and the hubby's) $14,000 checks or that miniature Matisse.
The lucky taxed few: Again, I realize that this doesn't apply to most of us. But we can hope. As one financial pro once said to me, we all should be so lucky to have to worry about paying such taxes!
If, however, you are rich enough to be concerned about the federal estate tax, you don't want to duplicate James Gandolfini's estate tax errors. Sit down with a financial planner and tax adviser to get personalized advice for your particular situation. You don't want to have your estate
And don't forget that some states also collect estate and/or inheritance taxes. Be sure to take that into account in your planning for your state and your heirs.
I'll see you back here tomorrow with the next holiday tune and tax tip. Until then, keep humming!
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Nice tax tips! I just wrote an article that discusses the true impact of taxes on the overall cost of items we purchase.
Posted by: Will Murphey | Thursday, December 12, 2013 at 04:10 PM