Gifting - wrap it or write it

Victoria A. Hemiup, BridgeTower Media Newswires

I remember the days when a trip to the Dollar Store and a budget of $50 was all it took to make our small children shout out in delight when they woke up Christmas morning. As they got older, the presents became smaller and the price tags were larger. Eventually, they had lives and children of their own. There were periods of time when they needed a little “help” from Mom and Dad, and that is when we introduced the idea of gifting. No last minute crowds, no wrapping — just the stroke of a pen.

Economist Joel Waldfogel, author of the 2009 book Scroogenomics, is quoted in an article by Denver Nicks entitled “Why You Should Give People Cash for Christmas” as saying “As an economist, I see gift giving as a method of resource allocation that is entirely free of all of the good disciplines that we usually attribute to economic decision-making.” (Nicks, Denver, “Why You Should Give People Cash For Christmas.” Money Magazine, December 2015). His suggestion was to give people money and let them make the buying decisions for themselves.

The IRS defines a gift as “any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return.” In other words, if you give $15,000 to your child, they may not provide you with services or goods of equal value in exchange for the money.

For 2019, the annual exclusion rate is $15,000. This means that you may gift $15,000 without making it a taxable event for you or your child. If you are married, your spouse may also give the same child $15,000 for a total of $30,000. If you have four children you may give each of them $15,000/$30,000. These gifts are not deductible on your income tax return.

When it comes to gifts between spouses another set of rules applies. There is an unlimited marital deduction that allows a spouse to give their husband/wife any amount of property or money while living or posthumously without incurring state or federal gift tax, with the condition that the receiving spouse is a U.S. citizen.

In addition to the $15,000 annual exclusion, there is a $11.4 million lifetime exclusion for 2019. Any amounts that you gift over the annual $15,000 will be deducted from your lifetime exclusion. The IRS keeps track of this by having you file a gift tax return for amounts gifted over the annual exclusion. If you never gift, your entire lifetime exclusion may be used against your estate when you die.

Gifting is a personal decision. My husband and I decided that we wanted our children to have the benefit of having funds via gifting instead of waiting until we die to receive their inheritance. Your situation may be totally different. Check with your team of advisors to see what path is best for your financial situation.

Please refer to IRS website for further detail https://www.irs.gov

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Victoria A. Hemiup is an Assistant Vice President, at Karpus Investment Management, a local independent, registered investment advisor managing assets for individuals, corporations, non-profits and trustees. Offices are located at 183 Sully’s Trail, Pittsford, NY 14534 (585-586-4680).