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FEDERAL GIFT TAXES CAN REDUCE AN ESTATE'S TAX LIABILITIES: PART 3 OF 3

FEDERAL GIFT TAXES CAN REDUCE AN ESTATE'S TAX LIABILITIES: PART 3 OF 3

You should now understand how you can make lifetime gifts to reduce the tax liabilities on your estate. However, you can further reduce your income tax liabilities by understanding the federal tax code. The Internal Revenue Service (IRS) typically considers all gifts as taxable unless they come within the annual gift limits. The IRS does not consider some gifts as taxable. This means that some types of gifts will never trigger income taxes, regardless of the exclusionary rule. Paying an individual’s medical expenses or tuition, gifts to political organizations and spousal gifts are not taxable. Furthermore, gifts to qualified charities are even deductible in addition to being non-taxable! This may be a good year to find a charity that you would like to help by making a cash gift or property donation to serve your estate planning needs.

If you make a cash gift, it’s easy to find the value of your gift for computing your federal income tax liabilities. In other words, a cash gift of $13,000 is worth $13,000. However, for other gifts, you will need to include copies of appraisals or any other formal documents with your federal income tax returns. The IRS typically uses a fair market value approach to establish the value of your gift. You may need a formal appraisal conducted by a professional accountant or valuation company to help you establish the fair market value of property.

In closing, you now understand that making a lifetime gift can reduce your estate taxes by reducing the assets within your gross estate.

This blog is part 3 of 3 on how Federal Gift Taxes cab reduce an estate’s tax liability. If you’ve missed parts 1 and 2, check out our blog.

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