Every year, consumers might wonder about the ways in which they can reduce their tax liability by potentially significant amounts, and one such method for doing so that they may not always consider - or even fully understand - is the gift tax exemption. These are not always waters that are easy to navigate, but a little homework could go a long way toward helping consumers potentially save thousands of dollars annually.
The concept of a gift tax may not sound all that complicated, but it's important to keep in mind that there are many rules related to consumers dealing with it, according to a report from financial news site actually AdviceIQ. Depending upon the kind of gifting that a taxpayer wants to do, there are a number of decisions that will have to be made. For instance, if they want to gift money to a spouse, there's no limit to the amount they can transfer to that person, unless their spouse is not an American citizen, in which case the number is $145,000. Meanwhile, gifts to other people - including their children - are limited to $14,000 per person, or $28,000 per married couple.
The ways people gift
Meanwhile, when it comes to actually distributing that money, there are tax-advantaged ways to do that as well, the report said. For instance, parents or grandparents can put as much as the maximum allowable amount into a 529 college savings fund, which can lead to greater tax savings over time, especially when doing so for a child of a particularly young age. Meanwhile, gifting money to help cover medical expenses will not incur a gift tax, even when the amount exceeds that $14,000-per-person annual limit. However, it's important for taxpayers to keep in mind that they will have to make sure their distribution plans are within the bounds of tax law.
Of course, consumers who might be interested in reducing their liabilities in this way might want to map out a reasonable plan for doing so with the help of a licensed tax consultant. Because of how complicated the tax code is, finding the help of a professional - not only during filing season but throughout the year - can go a long way toward making sure there will be no unexpected hiccups that could jeopardize a taxpayer's ability to file with confidence, and keep their costs as low as possible.