A recent Wall Street Journal article reminds us that amidst all the questions and speculations regarding the fate of the tax laws in 2013, there is still one effective and simple tax benefit that is not set to expire by the end of year: the “annual gift exclusion”. This exclusion enables one to give a gift of up to $13,000 per taxpayer per year tax-free. There is no limit to the number of recipients and they don’t even need to be family members. The article highlights 3 benefits of the annual gift exclusion:
Spouses can gift-split. Married couples can opt to gift-split, in which one spouse combines their exclusion in order to give gifts for both. For example, a wife with limited assets of her own can have her husband give a gift of up to $26,000 to each of their children and grandchildren without being taxed.
Any assets can be given. Just about any kind of asset (e.g., cash, securities, heirlooms, collectibles, share in a business, etc.) can be considered as a gift, although appraisals may be needed for those that are “hard-to-value”.
It can be combined with 529 plans. Givers can open an account on behalf of a beneficiary such as a grandchild, and it would be considered a “gift” paid out of their estate. The giver has the option of withdrawing from the original amount without being taxed, giving him a sense of security that he can still access the money if needed. Additionally, up to five years of annual gifts (e.g. 5 x $13,000) can be given at once to a 529 plan.
The one thing to keep in mind is that there is a “caveat” in using the annual gift tax exclusion. The Internal Revenue Service should be able to ascertain that the gift was “completed” (i.e., you gave it and it was received). It won’t do for the IRS to discover that a gift you “gave” never left your household.
The full article, which includes other tips and strategies on the use of the annual gift exclusion, can be found here.
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