Gift planning in general can take two forms:
- Gifts to individuals
- Gifts to charities.
Gifts to individuals can take the form of cash, real property or business interests. Things to keep in mind when gifts are made to individuals:
- Gifts are subject to both gift tax and income tax rules.
- Gift tax rules state that you can make a gift to any individual during each calendar year in amount equal to $14,000.
- Income tax rules state that when you make a gift, you can only give what you have. Therefore, if what you have is subject to income or capital gains tax; then the recipient of the gift is then responsible for the income or capital gains tax.
Gifts to charities can be outright gifts or can be through trust funds. Things to keep in mind when gifts are made to charities:
- Gifts to charity can reduce the amount of income tax you pay during the year the gift is made.
- You can reduce the amount of estate tax with a gift to charity at death. What is not generally understood is that the amount of gift to charity can be greater than initially thought because of the amount of the estate tax saved.
- Charitable gifts of tax deferred accounts (i.e. Standard IRA, 401-k and annuities) results in estate and income tax benefits. A retirement account may be subject to an effective tax rate of 75% when distributed to individual heirs (who therefore receive only 25% after tax) whereas a charity pays no tax so 100% goes to the charitable purposes intended.