The Spirit of Giving - Ways to Give without Giving to the IRS - Alaska Permanent Capital Management


The Spirit of Giving – Ways to Give without Giving to the IRS

Monetary GiftsWelcome to the season of giving! I have a one-year-old and I am so excited to see her reaction this year when she opens her presents on Christmas day. However, not all gifts have to come wrapped with pretty ribbons and bows. Perhaps you would like to give your family members a monetary gift and if so, you might find this information about gift tax rules important.

The IRS has many rules and some of them even apply to the amount that you can give to others without worrying about gift tax implications. In general, each individual is able to give up to $14,000 to any one donee for 2014. Recently announced, the same limit applies for 2015. This is called the annual gift tax exclusion. For example, if you have three children, you could give each one $14,000 this year without having to file a gift tax return for a total of $42,000 in gifts. If you are a married couple with three children, you are both able to give $14,000 to each child (totaling $84,000 in gifting).

Instead of an outright gift, you could also consider gifting your annual exclusion amount to a 529 education savings account for your children or grandchildren. With a 529 account, you can actually forward-fund the account for up to five years. For example, each individual can deposit $70,000 into a 529 for each beneficiary this year, which is equal to five years’ worth of gift tax exclusion (this figure again doubles for couples). You do have to validate the five-year forward election by filing the Form 709 gift tax return, but this can truly be a gift that keeps on giving!

There are certain types of gifts that may not be subject to the annual exclusion limit. Therefore, you may be able to give an unlimited amount of money for the following types of gifts:

  1. Gifts made to pay for tuition and/or medical expenses (made out to the qualifying school or medical facility directly).
  2. Gifts to your spouse
  3. Gifts to a charitable organization

Lastly, you might consider the gift that gives more. Most money you give is from income that has already been taxed (and with the exceptions above is also subject to gift tax).  In 2014, you may be able to donate your required minimum distribution (RMD) up to a certain limit ($100,000 last year) from your IRA for those over 70 ½ directly to a qualifying charity. In many cases this passes income-tax free to you and gift-tax free to you for your beneficiary. If this interests you and you haven’t yet taken your RMD, then watch closely to see what Congress decides in the next few days.

You do not want to confuse the annual tax exclusion from the lifetime gift exemption. The lifetime gift exemption is something to consider if you want to give away even more money.  As there are many rules surrounding tax-free giving, please consult with your tax professional before engaging in any gift to learn how it affects you.  In the spirit of giving, we wish you a very happy holiday season!

Kim Butler
Associate Financial Planner


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