Gift Tax Avoidance

4/1/2020

If you or a well-off relative are facing the gift and estate tax, here’s a planning opportunity often overlooked: paying expenses for loved ones. Such payments, structured correctly, do not represent gifts.

The monies spent by you on the qualified payments reduce your net worth and taxable estate, but they do no harm to your income, gift, or estate taxes. Further, the loved one who benefits from your help does not incur any tax issues.

As unusual as this sounds, with the qualified payments, you operate in a tax-free zone.

Even if you don’t have a gift tax problem today, use the tax-free method because, who knows, you could win the lottery tomorrow.

Gift and Estate Tax Exclusion

If you die in 2020, your heirs won’t pay any estate or gift taxes if your estate and taxable gifts total less than $11.58 million.

If you are married and have done some planning, you and your spouse can avoid estate and gift taxes on up to $23.16 million.

Lawmakers set the current rates with the TCJA and also set them to drop by 50 percent in 2026. Gifts made now continue as excludable should they exceed the upcoming 50 percent drop.

If you have an estate tax problem and Uncle Billy needs help with his certain bills. Don’t make a monetary gift to uncle Billy to help him. Instead, make your checks payable to the place that are billing Uncle Billy. We will help you ensure those bills are qualifying bills.

Even if you don’t have a gift tax problem today, use the tax-free method because, who knows, you could win the lottery tomorrow.

Sure, you have an $11.58 million estate and gift tax exemption this year. In 2026, that’s scheduled to drop by 50 percent (adjusted for inflation). But the current deficit issues could trigger a drop to, say, the 2008 exemption amount of $2 million, or lower.

If you have questions about the qualified payment strategy, please contact us.

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Important Disclosures

Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

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Author

Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.

Keana founded this website and decided and created this blog page to offer a space for those seeking knowledge to understand, however not to be confused with advice or planning strategies.

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