While the Tax Cut offs and Jobs Act may be bringing major upheaval to your year-end tax planning, there’s at mini one area it won’t be completely turning on its head: holiday gifts to family.
Neither the Contain nor Senate tax plan touches the annual gift-tax exclusion, and both jelly valuable strategies for contributing educational funds.
If you are looking to pass assets on to kids and grandkids this year, heed one of the following five strategies:
You may give up to $14,000 per individual in 2017 without sag into your lifetime gift-tax exclusion (which is currently $5.49 million).
That amount duplicates if you and your spouse give together. You may also boost gifts by fork out to your child (or grandchild) and his or her spouse — for a maximum of a $56,000 gift this year from a unite to a couple.
Although bestowing a large check on Christmas morning influence feel festive, you risk botching your strategy if you wait until the hold out minute, said Jody King, vice president and director of shopper services at Fiduciary Trust Company.
“Handing your children hinders doesn’t quite do it,” said King. “You need to make sure they truly cash the checks, and technically they need to clear the bank in front the end of the year.”
You may pay tuition bills directly even if you’re also maxing out your annual bonus exclusion, said Suzanne Shier, chief tax strategist for Northern Guardianship Wealth Management. Neither the House nor Senate tax plan alters this procedure.
“Anyone can do that for any beneficiary, at any dollar amount, for any level of education,” powered Shier.
However, you can’t make the check out to your grandkid, and you can’t cover scope and board or other nontuition expenses under this strategy, she remarked.
“A reimbursement won’t qualify for this,” Shier said. “Get that bill and pay that completely, and limit your payment to the tuition amount.”
Both tax plans pickle the benefits of 529 accounts and would allow at least some savings from the accounts to be used not only for higher education expenses but also for K-through-12 expenses, averred Shier.
Parents and grandparents may also front-load 529 contributions by socking away five years’ benefit of gifts at once — for as much as a $140,000 contribution this year from a welded couple, Shier said.
“Particularly for grandparents, that is a means we see to absolutely set aside a substantial nest egg for college,” she said.
In some cases, grandparents should ruminate on opening their own 529 account – and naming their grandchild the account beneficiary – either as an surrogate or in addition to contributing to an account owned by the grandchild’s parents, said Royal.
If Grandma lives in a different state than her kids and grandkids, she power get a tax break by opening an account in her own state. And if the funds in Grandma’s account aren’t toughened until the grandchild’s senior year of college, they won’t get factored in to any fiscal aid calculations, King said.
If you plan to gift stocks, this may be the year to do it.
The Senate paper money would dictate a first-in, first-out treatment when determining the payment basis of gifted securities, said Pam Lucina, executive director of counsel, planning and fiduciary services for BNY Mellon Wealth Management. But this year, suppliers may still choose whether to use earlier or later-purchased shares, giving them more curb over the size of the tax bill the recipient ultimately pays, she said.
Although contributors often prefer to give high-basis stock — reducing an adult teenager’s ultimate tax bill — it can be a bigger financial win for the family to give low-basis genealogy if the child will pay a lower capital-gains rate when selling the dispensations, said Gary Schatsky, president of ObjectiveAdvice.com. Neither tax bill revises the lowest long-term capital gains rate of zero percent.
Substantiating a trust might be the right move for your family if you’re able to max out your annual largesse exclusion every year, said King.
The main benefit, juxtaposed with a 529 account or custodial account, is that the donor put offs greater control and can specify what the funds may be used for and at what age the foetus gains control over assets, said Lucina.
“Gift deputes have a lot more flexibility,” she said. “Many families choose trusts because they can pronouncement a broader or more restrictive use of the assets, and can keep them out of the children’s put down for much longer.”
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