Tax Bites: Tis the Season for Gifts ... and Taxes
Kathleen S. Vaccaro, EA
December 20, 2017
It is very likely that a game-changing tax reform bill will be signed into law before year's end. In this season of gift-giving, our friends in Congress will be Santa for some and the Grinch for others. Which is it for you? We are going through the 1,000-plus page legislation this week to see what last-minute moves can be made before the end of this year.
If you know that you will owe 2017 state income tax, there may be compelling reasons to make that payment by December 31. What about pre-paying 2018 state income taxes? Congress is one step ahead of you, closing that loophole, but you may be able to prepay your 2018 property tax bill. If you would like to discuss your specific situation, please contact us for a phone appointment.
P.S. Speaking of gifts, the basic tax rules for giving gifts and receiving gifts have not changed. For the person receiving the gift, there is no tax issue. The gift GIVER is the one who really needs to pay attention to the rules. Read on for more...
Regards,
Kathleen S. Vaccaro, EA
Goldberg & Vaccaro Tax Services LLC
What do gifts have to do with taxes?
My daughter Kim and her husband Max live in Houston, Texas. At 1,608 miles as the crow flies, that is a long way from my home in Reading, Massachusetts. Still, Houston is 1,701 miles closer to me than their previous residence in Erbray, France, located a short drive from Max's childhood home. As far as I am concerned (although Max's mother may disagree), things are headed in the right direction.
There is still room for improvement, however, and I may have hinted *once* or *twice* that I would l love to see them back on the East Coast.
Preferably, near Boston.
Ideally, in Reading.
Let's say I wanted to help them realize my (I mean "their") dream of living close to Kim's parents in Massachusetts. (Who wouldn't?)
Now let's say I won the lottery. (I didn't.)
But let's say that I did.
IRS rules say that I can make gifts up to $14,000, per calendar year, to any individual without having to file a gift tax return.
The problem is, $14,000 won't get us very far.
Let's say their dream house (in Massachusetts, of course) requires a down payment of $90,000.
I would like to help them, but I would rather NOT have to add any IRS paperwork to the process.
Fortunately, there are actually four of us involved: me, my husband Chris, Kim, and Max. So I can gift Kim $14,000 and Chris can gift Kim $14,000. Then we can each gift Max $14,000. That is a total of $56,000 from our house to theirs, all flying under the IRS radar.
But we are not quite there yet. We are still short $34,000 to get to their $90,000 down payment, and I really do NOT want to have to file any IRS paperwork to realize my their dream.
Fortunately, it's December. As luck would have it, the gift limitation is based on the calendar year. That means we can "gift" a total of $56,000 in December 2017. Then, we can "gift" again in January 2018. So in January, Chris and I could each write a check to Kim for $8,500, and we could each write a check to Max for $8,500, for a total of $34,000. Together with the $56,000 given to them in December, they would have the $90,000 needed for their (Massachusetts) dream home.
In fact, if we "max" our gifts in 2017 and 2018, the total gift could be as high as $112,000, all without exceeding IRS reporting limits of $14,000 per year.
Gift tax rules are complicated, but here are a few simple things to keep in mind:
1. In most cases, there will be no tax due, even if you have to file a gift tax return. That is because any gifts you make during your lifetime just reduce the amount that your estate can pass along tax-free after you die. The new tax bill will likely raise that limit to $11 million, which is the amount you can give away during your lifetime without having to pay any gift tax.
2. For Massachusetts residents, estate planning often includes a smart-giving plan. There is a big difference between the state's $1 million estate tax limit and the new $11 million federal limit. If you fall within this range, and many of our clients do, your heirs may be surprised with a large estate tax bill from Massachusetts that could have been lowered with some strategic gifts made during your lifetime.
3. Oddly enough, it's the GIVER who has to file the gift tax return when he or she gives anyone (even their house-hunting adult children) gifts that total more than $14,000 in the same calendar year.
4. The limit applies to each INDIVIDUAL. If you are married, you AND your spouse can each gift $14,000 to any other individual, for a total $28,000 combined from the two of you.
5. The limitation is based on the calendar year gifts. If you want to give a larger gift near the end of the year, it could make sense to give half in December and half in January, in order to avoid the gift tax limits.
I'm heading out now to buy a lottery ticket with lucky number 0-1-8-6-7, the zip code in Reading. If it hits, next month's newsletter will talk about the taxation of lottery winnings. If it doesn't, then look for more discussion of the "simplified" tax reform legislation now working its way through Congress.
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In Memoriam - Stephen A. Goldberg January 15, 1945 - December 5, 2017
As many of you know, our dear friend and company founder Steve Goldberg passed away this month. Most everyone knew him as "Goldie" but somehow that never caught on in the office. Even so, we knew Steve cared about us deeply. He loved his wife and family dearly. And we are continually amazed by the number of friendships and business relationships he had dating back decades. How many 72-year-old guys still have close friends named Sudsy, Jailbird, and the Mailman?
Steve was a people person extraordinaire. The greatest lessons we learned from Steve have nothing to do with taxes or accounting, but instead how to be a good and decent, thoughtful, and genuine human being.
Rest in peace, Goldie, your legacy continues on in the loving family, enduring friendships, and solid business that you built over the course of your lifetime.
About Us
Goldberg & Vaccaro Tax Services LLC specializes in tax preparation and accounting services for individuals and small business owners.
Please contact us if we can help you:
PHONE: 978-663-4537
EMAIL: office@goldbergtax.com