Three Income-Tax-Smart Gifting Strategies

If your 2015 tax liability is higher than you had hoped and you are ready to transfer some assets to your loved ones, now may be the time to get started. Giving away assets will, of course, help reduce the size of your taxable estate. However, with income-tax-smart gifting strategies, it also can reduce your income tax liability — and perhaps your family’s tax liability overall:

  1. Gift appreciated or dividend-producing assets to loved ones eligible for the zero percent rate. The zero percent rate applies to both long-term gain and qualified dividends that would be taxed at 10 percent or 15 percent based on the taxpayer’s ordinary-income rate.
  2. Gift appreciated or dividend-producing assets to loved ones in lower tax brackets. Even if no one in your family is eligible for the zero percent rate, transferring assets to loved ones in a lower income tax bracket than you can still save taxes overall for your family. This strategy can be even more powerful if you would be subject to the 3.8 percent net investment income tax on dividends from the assets or if you sold the assets.
  3. Do not gift assets that have declined in value. Instead, sell the assets so you can take the tax loss. Then gift the sale proceeds.

If you are considering making gifts to someone who will be under age 24 on December 31, make sure he or she will not be subject to the ‘kiddie tax.’ In addition, if your estate is large enough that gift and estate taxes are a concern, you need to think about those taxes, too. To learn more about tax-smart gifting, contact us.

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