Before the end of the year, take advantage of what is known as the annual gift-tax exclusion. This allows you to give up to $14,000 a year to each of any number of recipients. It allows $28,000 a year to each recipient if your spouse joins in the gift. The exclusion is an annual one – use it or lose it!
Transferring assets to your children or to parents you’re supporting may result in an income tax savings if the recipients are in a lower tax bracket than you. How? Assuming the gift was earning interest, the interest will now be taxed at the receiver’s rate and will be paid by the receiver.
In the case of children, Kiddie Tax rules may apply. What is the Kiddie Tax? If certain income limits are met, the child’s income will be taxed at the same rate as the parent’s tax rate. This rule affects all children under age 18, and certain children under age 24, depending upon whether they are in school and/or whether they supply over 1/2 of their support.
Transferring assets to family member is one way of potentially reducing income taxes. Bonus — The gifts you make reduce your estate and, as a consequence, the estate tax ultimately levied will be less. Keep your annual gifts under the limit (listed above) and you’ll also save gift tax. If you are interested in establishing an education fund for a child with your gifts, you may want to consider a 529 Savings Plan.