Direct Asset Transfers Free Of The Gift Tax
Taxation is an interesting thing, and a lot of people would question why you should have to pay a tax
when you give someone a gift. If you were to purchase a painting for instance, you would have to pay
sales tax (unless you lived in one of the five states that does not have a sales tax). And of course you
would have purchased the painting with money that you had left over after you paid income tax on the
So you have already been rather heavily taxed before you bought the painting, and you were taxed on
the purchase. Why should you have to pay yet another tax if you choose to give it to someone? And we
are not talking about a small drop in the bucket here. The rate of the gift tax at the present time is 35%.
All the above is food for thought, but we do live in the real world and we must react accordingly.
Though there is a gift tax in place, there are exemptions. There is a $5 million unified gift/estate tax
exemption so you can give gifts equaling this amount free of taxation throughout your life (subject to
the sunset provisions of the applicable Act at the end of 2012). However, your available estate tax
exclusion is going to be reduced by the amount of gifts that you give utilizing this exemption.
Beyond the unified exclusion there are some other gift tax exemptions that enable tax-free transfers of
assets. One of them allows each person to give as much as $13,000 as a tax-free gift to any number of
recipients each year. This is a per-person exemption, so a couple could give as much as $26,000 to an
unlimited number of people if they were to pool their respective exemptions.
You can also pay the medical expenses of others as a gift free of the gift tax, and you can pick up
college tuition costs as a tax-free gift as well.
Tax-free gift giving can reduce the taxable value of your estate while enabling the transfer of assets in a
tax-free manner, and it is certainly something to keep in mind when you are making preparations for
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