‘Tis the season to be generous: Are you gifting as a tax strategy this year?

Do you have extra money this holiday season and feeling really generous this year?  Make a year end gift to your family or friends.  The tax code allows every person to give any other person up to $13,000.00 for 2011 without incurring any gift tax.  This annual exclusion amount doubles to $26,000.00 per recipient, if your spouse consents to gift splitting.

Annual exclusion gifts remove the amount of the gift and future appreciation in the value of the gift from your estate. These gifts shift the income tax obligation on the property’s earnings to the donee, who may be in a lower tax bracket.  This is a great way for parents to give part of their estate to their children and grandchildren each year without creating a tax burden and being able to see their children enjoy the gift while they are still alive.

Now here’s the technical stuff you need to know:

A gift by check to a noncharitable donee is considered a completed gift for gift and estate tax purposes on the earlier of:

1. The date on which the donor no longer has sufficient control under local law to have the power to change the check’s disposition, or

2. The date when the donee deposits the check (or cashes it against the donee’s available funds) or presents the check for payment, if it is established that:

  • The check was paid by the drawee bank when first presented to that bank for
    payment; The donor was alive when the check was paid by the drawee bank;
  • The donor intended to make a gift;
  • Delivery of the check by the donor was unconditional; and
  • The check was deposited, cashed or presented in the calendar year for which
    completed gift treatment is sought and within a reasonable time of issuance.

For example, a $10,000 gift check given to and deposited by your daughter on Dec. 31, 2011, is treated as a completed gift for 2011 even though the check does not clear until 2012 – assuming the donor is still alive when the check is paid by the drawee bank.

So this holiday season you can help your children buy a house by giving them the downpayment or support your grandchildren’s eductation by gifting them money for college tuition.  Happy Holidays to all from the IRS Angel.

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