6 Tips for Tax-Free Gifting

April 4, 2023
6 Tips for Tax-Free Gifting

The annual gift tax exclusion is a win-win for taxpayers, allowing you to share your wealth during your lifetime and reduce your taxable estate. The following tips can help you make informed decisions about tax-free gifts.

Q: Do I Have to Wait a Year After My Last Gift to Make My Next?

A: No. For example, if you gifted money in December 2022, you don’t have to wait until December 2023 to do so again. You can make gifts anytime throughout the year. Perhaps you’d like to pair a gift with an upcoming birthday, graduation, wedding or other special occasion. Of course, you’ll want to make sure you don’t exceed the annual limit you can gift to an individual to avoid having the overage count toward your lifetime gift exemption amount. Note that tuition and medical expenses are not considered taxable gifts.

Q: Should I Use a Cash App to Track My Gifts?

A: It’s not advisable. Although cash payment apps like PayPal, Venmo and Zelle are easy and convenient to use and provide you with monthly reports of your activity, using them may prompt an inquiry by the IRS, which could assess whether your gift is just that—a gift—and not taxable income.

Q: What Are My Options for Giving Gifts to Family Members Under 18?

A: Although cash may be your first choice, a custodial account like an UTMA (Uniform Transfer to Minor Act) or UGMA (Uniform Gifts to Minors Act) are other options to consider. Here’s how they work: As the donor you name the account custodian who manages and invests the funds on behalf of your minor beneficiary until he or she reaches age 18 or 21, depending on the state where the account was set up. On top of the amount you contribute being exempt from gift tax, any income earned is taxed at the minor’s lower tax rate.

Q: What If I Don’t Want My Minor Beneficiaries to Access Their Accounts Until They’re Older?

A: For beneficiaries you believe are too young or inexperienced to prudently handle money, an irrevocable trust may be a solution. This type of trust allows you as the grantor to transfer assets into the trust and set its distribution terms. You no longer own the assets—the trust does—but you direct the age at which the beneficiary will receive the assets or upon your death. Alternatively, you could choose to keep the assets in the trust and let the trustee decide when to disburse them.

Q: Can I Fund a Child’s Education With a Gift?

A: Yes. If you’d like to support a child’s or grandchild’s education, you can make monetary gifts to a 529 plan account. The funds grow tax deferred over time and can be withdrawn tax free to pay for the child’s qualified educational costs. What’s more, you can front-load a 529 account with up to five years’ worth of gifts. Keep in mind that you’ll have to file a gift tax return to report your donation and wait five years before making another annual exclusion gift to the minor child.

Q: Do I Need to File a Gift Tax Return Even Though I Don’t Owe Gift Taxes?

A: Although not necessary, filing a gift tax return is probably a good idea in certain circumstances. Consider filing a gift tax return if you have gifted property that is difficult to value, like an interest in a family business. Assuming disclosure requirements are met, this begins the three-year statute of limitations, after which the IRS will not be able to challenge the value of your gift.

At Mariner Wealth Advisors, we can work with you to create a gifting strategy that reflects your wishes and is coordinated with your overall wealth plan.

Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about specific 529 plans is available in each issuer’s official statement, which should be read carefully before investing.

This article is provided for informational and educational purposes only, and the views expressed do not take into account any individual personal financial, legal, or tax considerations. As such, the information contained herein is not intended to be personal legal, investment, tax advice, or a solicitation to or recommendation to engage in any strategy mentioned. Any opinions expressed are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information. The use of trusts involves complex laws, tax rules, and regulations. Interested parties are strongly encouraged to seek advice from qualified tax, legal, and financial professionals before making any financial-related decisions.

Mariner Wealth Advisors (“MWA”), is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment adviser does not imply a certain level of skill or training. MWA is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which MWA maintains clients. MWA may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MWA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website. Please read the disclosure statement carefully before you invest or send money.

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