Reducing your federal gift taxes

Gifting means transferring property without getting anything in exchange for it

Every year, you can give away up to $10,000 (as of 2000) to as many people as you want without any estate tax consequences. The gift tax imposes taxes on transfers made during your life, which differs from the estate tax, which taxes transfers at death. The rates are the same for both taxes.

Gift Taxes are measured by the actual value of the property transferred and is not due until you gift over the maximum amount.

Gifting is 100% tax free when you give (to):

A hosptial or doctor for someones medical bills
An eductional institution for someones tuition
Less than $625,000 over each spouses lifetime
A spouse who is not a U.S. citizen, up to $100,000 per year
A spouse who is a US citzen without limit, as long as they are included in your estate

Disadvantages of gifts:

Changes in the law may affect your gifting plans
The donor may become short of funds
There must be no strings attached
The receiver must enjoy and use the property and income immedietley
Gifts of future interests do not qualify
The giver may run need the money for a sudden event
The giver may end up living much longer and need the income
The gift may depreciate in value
Any gifts within 3 years of death may be included in the estate

Finally, how do you lower your gift taxes?

Give gifts early before those assetts appreciate and gift tax rates increase
Give gifts to charity
Keep abreast of legislatiion and changes in giving maximums
Give often, not missing valuable years
Use combined gifts of up to $20,000 with your spouse
Give to as many as you want up to the annual and lifetime exclusions
Don't be afraid to help those with medical and tuition bills
Never give a gift with preconditions
Survive so that you can give more over a longer period
When may I report gifts?
If you gift over $10,000 to a us citizen per year
If you gifted to your foerign spouse over $100,000
Deductible gifts to charities exceeding $10,000

Always consult with an attorney before even considering completeing IRS form 709, the federal gift tax return. Here are the instructions. There is also a short version of form 709, called 709A. You sign both voluntarily and under penalty of perjury, and the information can be used against you in court. If you do decide to file a federal gift tax return, you also have to decide if you want to file the required equivalent state gift tax return.

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