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Gifting continued It is usually a bad idea to use a company to make a gift because gifts made by a company are generally limited to $25 a year per recipient, if the gift exceeds that amount, it will be considered a form of compensation and fully taxable as such to the recipient – employee. The benefits and the exclusion amount are strictly for individuals. good gifting plan includes marriage. The reason is rather simple. Married individuals get to do something that no one else gets to do: For every dollar given by a married couple, 50 cents is deemed given by the husband and the other 50 cents is considered gifted by the wife, if they make the election to gift split. Returning to the previous example, consider a mother and father with two children. Instead of $14,000 a year that is exempt from taxation, the father can now give up to $28,000 per child per year. Remember, this is just an example, but gift splitting applies to any transaction that is deemed a gift. The increase in the amount that can be given allows for more tax-free gifts. Who would have thought that marriage might just result in a tax benefit instead of a penalty? and forgetting what has been gifted. Before making a gift, you should understand what you are giving away and the possible future consequences. This is more of a concern when dealing with stocks. When it comes to gifting stock of a family-owned business or a closely held company, knowing what the stock value is very important. There have been cases Good Gifting Strategies where individuals have gifted away their Use the Exclusion. companies because they did not pay The best thing to do when gifting attention to the stock they were gifting property is to use the full $14,000 annual to their children and what the capital exclusion. Exclusion means that the structure of the company was. When first $14,000 dollars of value is barred making gifts, you must be very careful to know what It is usually a bad idea to use a company you are giving up and the to make a gift possible affects of the gift. Not taking the time to because gifts figure out the correct fair made by a market value of the property company are is foolish. The fair market Shifting Income. value of any gift is equal generally For a really effective to the fair market value of limited to gifting strategy, make sure the best commercial use of $25 a year per that the gift shifts income the property. Most types from a higher tax bracket to of properties have only recipient. a lower tax bracket. There is one use so this is not that nothing wrong with shifting big of a concern. The fair If the gift income in this fashion. A gift market value can be found that shifts income can help exceeds that reduce your income taxes by using the Internet or a amount, it will be for the year. The shift also price guide of some sort. Land on the other hand considered a form of could allow you to avoid a can have a huge difference higher tax bracket and, thus, compensation and fully reduce your tax bill. Also, in fair market value from taxable as such to the recipient. it could help regain some one use to the next. To illustrate, suppose a father of the tax credits that are has a large field adjacent to the property from being taxed. The best aspect of phased-out at the higher tax brackets. where his house is located. Well, his this exclusion is that it is applied to each When devising a gifting strategy, make son would like to build a house on this donee. Suppose a single father has two sure income is shifted in a fashion that large piece of land, but the property is children. He can make a $14,000 gift will afford you the greatest tax savings. in a developing area and could be used to his first child without being taxed to build a large shopping mall. Well, and also make another $14,000 gift to Why Gift Property? if the field were used for building the his second child without being taxed The first reason to gift property during home, it would be worth $500,000. By on that gift either. Furthermore, the your life is to make sure that it is given to contrast, if the land were used to build recipient of the gift does not have to be the correct person and not left to chance the shopping mall, the land has a fair a family member for the exclusion to upon your death. If the property is not market value of $6 million. The father apply. The full utilization of the $14,000 transferred before three years prior to decides the land should go to the son. gift exclusion is key in a good gifting death, it is considered part of the estate. The fair market value of the gift is six strategy. There are many rules that govern what is million dollars. The father is going to be included in the gross estate but generally taxed on six million dollars. When you Marriage. the gross estate includes all property are ready to make a gift, make sure time This may be a little hard to swallow owned at the time of death and the value is given to determine the fair market for some, but another element of a of any property that an individual was value of the gift. good gifting plan is marriage. Yes, a continued on page 38 28 FEDA News & Views