As the year approaches its end, you will come across different publications about tax planning and some
of these articles rarely talk about the deviations their advice. It is not easy to offer advice that applies to the majority of taxpayers.
Barron’s report for the WSJ has the following recommendation:
“Use your gift-tax exclusion. You can give up to $15,000 ($30,000 with a spouse) to as many people as
you wish in 2018, free of gift or estate tax.”
This is quite true but 99.9% of the inhabitants of the US won’t get any tax benefits from using
their yearly gift tax inclusion. This kind of tax only applies to gifts or estates that are well over $11.2
million per person and $22.4 million if you are a couple. This exemption will be cut down by 50% in
2026. By the time this happens, the above advice will not apply to well over 99% of the populace of the US.
Granted, Congress can modify the law to cut down the lifetime estate and gift tax exclusion and if this
happens, perhaps a handful of taxpayers will benefit from this annual exclusion gifts by year’s end.
The obvious advantage of making gifts to family and friends as far as tax is concerned is if the done
makes less income than the donor. If the gift is appreciated stock, for instance, the capital gains on the
sale might be less and as well as the tax on any future revenue on the gift.
Another recommendation in the article is:
“Fully fund college-savings 529 plans. You can invest up to $15,000 in 2018, tax-free, without incurring
a federal gift tax…”
It might be a good idea to pay for a Section 529 college savings plan if you are a taxpayer who intends
to refund the college education fees for your children or other relatives. The saving plan has a lot of benefits. For example, the funds will be free of federal income tax and you can withdraw an amount up to the number of your college expenses at any time without paying tax. Another advantage is that the funder can be the owner of the Section 529 plan so if the beneficiary decides not to go to college, the owner can decide whether or not to change the beneficiary to someone else or even retrieve the funds.
Although you are still the owner, the 529 plan is not part of your estate. A Section 529 plan is one of the few means to move assets out of your taxable estate and still retain total control of the money.