Jobsandcareer.com organizes the most comprehensive job and career advice/news.
Between the stock market roller coaster and the announcement of massive layoffs at corporate giants like Bank of America, Morgan Stanleyand Citigroup, many people are feeling pretty glum this holiday season. As the New Year approaches, plenty of folks are wondering how they’re going to pay their bills.
If friends and family are among them and you have been more fortunate, you might want to help out. But did you know that the tax law regulates your generosity? This kind of assistance is considered a lifetime gift unless it’s for someone whom you are legally obligated to support, such as a child.
As far as the government is concerned, noble motives don’t matter; you must follow the same rules that would apply to any other lifetime transfers, including those intended mainly to pare down your estate and leave less for the government to tax.
The bottom line: Gifts of cash or other assets can count against your $5 million exclusion from gift or estate tax. If you exceed that limit, you could wind up owing gift tax of up to 35%. Even if you don’t, your lifetime gifts would reduce how much you can pass tax-free through your estate plan. And the current limits last only until the end of 2012 unless Congress extends them.
While generosity with family members often occurs under the radar, the law is clear: if the gift exceeds a certain value and the Internal Revenue Service catches it, you could be forced to pay the tax as well as interest, and, in some cases, penalties.
see photosNatikka/istockphotoClick for full photo gallery: Gift Taxes--The Other April 18 Return
Here are strategies for subsidizing relatives and, in some cases, friends without having to pay gift tax.
1. Write a check for up to $13,000. The simplest way to subsidize others is by using the annual exclusion, which allows...