Every year each individual is allowed to give an unlimited number of tax-free gifts. For 2014, that gift amount is $14,000. Also, direct payments of tuition to educational institutions or direct payments of medical care to providers made on behalf of another person are not subject to gift tax. However, if the payments must be direct- reimbursing the person for either is a taxable gift.
What does this mean? With a little creativity, large amounts of money can be moved around tax-free. Look at these examples:
- A couple has a married child. If each parent gives the child and the spouse the gift limit for the year, they can make four gifts and transfer $56,000 tax free.
- If grandma and grandpa want to help pay for college, they can write checks directly to Junior’s university and avoid paying gift tax.
Want to give a gift over $14,000? Contact me for information on making larger gifts.