If you are considering year-end gifts to children or grandchildren this November or December, the IRS continues to allow gifts of up to $14,000 annually or $28,000 if given jointly with your spouse without triggering gift tax consequences. The annual gift exclusion amount for 2018 will be increased to $15,000. These gifts can be to each child or person, with no limit applied to the number of recipients each year and can be given in the form of cash, investments, and/or property. All of this results in no gift tax trigger, although future limits may be adjusted under President Trump’s pending tax overhaul.
If you’re thinking about giving money to minor children, like a new grandchild, it might make sense to take advantage of The Uniform Gifts Acts—either the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act (UGMA/UTMA), depending on the state in which you live. An UGMA/UTMA account allows you to establish a savings or investment account in a child’s name. Note that an adult will need to be named as custodian of the account.
With an UGMA/UTMA strategy, the first $1,050 per year of unearned or investment income is tax free. For children under 18, anything between $1,050 and $2,100 is taxed at the child’s rate. Any income exceeding $2,100 for children under age 18 is taxed at the parent’s rate. For children over age 18, all income is taxed at the child’s rate.
Assets gifts can be given to anyone
Asset gifts are not limited to young children or newborns. You can also give to as many adults as you’d like up to $14,000 a year. Keep in mind, however, that the IRS considers the market value of the gift at the time the gift is given and not the original purchase price or cost basis. By making a tax-wise financial gift to an adult-aged child, you could assist them with a financial life transition: a well-timed gift could help fund a down payment for a home or help them afford to maximize contributions to an employer-sponsored retirement plan. Gap Financial Services can evaluate which strategies might be most appropriate for you and your family’s situation.
Finally, it is worth noting that the amounts of your annual gift exclusions are limited to a lifetime total. Currently, the limit is $5,490,000 ($10,980,000 for married couples). We’ll discuss this further in a future blog post.
Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. For more information, visit: Frequently Asked Questions on Gift Taxes