medical expenses

Tax

Eight Tips to Determine if Your Gift is Taxable

If you gave money or property to someone as a gift, you may owe federal gift tax. Many gifts are not subject to the gift tax, but there are exceptions. Here are eight tips you can use to figure out whether your gift is taxable.

1. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you make a gift to someone else, the gift tax usually does not apply until the value of the gifts you give that person exceeds the annual exclusion for the year. For 2012 the annual exclusion is $13,000 (same as 2011).

2. Gift tax returns do not need to be filed unless you give someone, other than your spouse, money or property worth more than the annual exclusion for that year.

3. Generally, the person who receives your gift will not have to pay any federal gift tax because of it. Also, that person will not have to pay income tax on the value of the gift received.

4. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).

5. The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. The following gifts are not taxable gifts:

  • Gifts that are do not exceed the annual exclusion for the calendar year,
  • Tuition or medical expenses you pay directly to a medical or educational institution for someone,
  • Gifts to your spouse,
  • Gifts to a political organization for its use, and
  • Gifts to charities.

6. You and your spouse can make a gift up to $26,000 to a third party without making a taxable gift. The gift can be considered as made one-half by you and one-half by your spouse. If you split a gift you made, you must file a gift tax return to show that you and your spouse agree to use gift splitting. You must file a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, even if half of the split gift is less than the annual exclusion.

7. You must file a gift tax return on Form 709, if any of the following apply:

  • You gave gifts to at least one person (other than your spouse) that are more than the annual exclusion for the year.
  • You and your spouse are splitting a gift.
  • You gave someone (other than your spouse) a gift of a future interest that he or she cannot actually possess, enjoy, or receive income from until some time in the future.
  • You gave your spouse an interest in property that will terminate due to a future event.

8. You do not have to file a gift tax return to report gifts to political organizations and gifts made by paying someone’s tuition or medical expenses.

Questions about the gift tax? Call us. We have the answers.

Asset Protection Estate Financial Planning Investments

How to Prepare for a Successful Retirement

As you approach retirement, it’s vital that you pay attention to key financial matters. Here are some of the items that you should check:

Health Insurance.
Are you among the lucky few who will continue to be covered after retirement? If not, then you’ll need to replace your health coverage.

If you will be eligible for Medicare at the time of your retirement, then you may want to start checking into “Medigap” coverage. Medigap insurance is a supplemental health insurance sold to individuals age 65 and older that covers medical expenses not covered or only partially covered by Medicare.

Tip: Before you retire, take care of any non-emergency medical, dental, or optical needs (if your employee plan coverage is broader than Medicare).

Other Types of Insurance.
Once you retire, you may need to replace employer-provided life insurance with extra coverage. You should also consider purchasing long-term health care insurance in case of a lengthy nursing home stay in the future.

Social Security.
Decide whether you want to take early Social Security benefits if you’re retiring before your full retirement age, which is currently 66 years of age for people born between 1943 and 1954. You can get 75% of your benefits at age 62.

Tip: For most people, taking Social Security benefits at their full retirement age makes the most financial sense. If you think you might need to take early benefits, give us a call. We’d be happy to discuss this with you.

Company Plan Payout.
You should plan well in advance how you’ll take the payout from your pension plan or 401(k) plan. For example, will you transfer the funds to an conventional or Roth IRA? How will the funds be invested?

Relocation.
If you’re planning a move to another state, make sure that you fully explore the financial ramifications of living there–before you move. Cost of living rates can vary significantly from one region of the country to another.

We Can Help. Retirement is an exciting time and planning in advance can make it a much smoother transition. Please contact us if you have any questions, need assistance or just want some additional guidance.

Accounting Business Tax

Year End Tax Saving Ideas For Individuals – Accelerating Deductions

Accelerating Deductions

  • Pay a state estimated tax installment in December instead of at the January due date. However, make sure the payment is based on a reasonable estimate of your state tax.
  • Pay your entire property tax bill, including installments due in year 2012, by year-end. This does not apply to mortgage escrow accounts.
  • Try to bunch “threshold” expenses, such as medical expenses and miscellaneous itemized deductions. Threshold expenses are deductible only to the extent they exceed a certain percentage of adjusted gross income (AGI). By bunching these expenses into one year, rather than spreading them out over two years, you have a better chance of exceeding the thresholds, thereby maximizing your deduction.For example, you might pay medical bills and dues and subscriptions in whichever year they would do you the most tax good.

Caution: In most cases, credit cards charges are considered paid in the year of the charge regardless of when you pay on the card. This, however, does not apply to store revolving credit cards, so if you charge expenses on a Wal-Mart store credit card, the deduction can not be claimed until the bill is paid.

In cases where tax benefits are phased out over a certain adjusted gross income (AGI) amount, a strategy of deferring income and accelerating deductions may also allow you to claim larger deductions, credits, and other tax breaks for 2011. The latter benefits include Roth IRA contributions, conversions of regular IRAs to Roth IRAs, child credits, higher education tax credits and deductions for student loan interest.

Tip: Deferring income into 2012 is an especially good idea for taxpayers who anticipate being in a lower tax bracket next year, generally because of much-reduced income or much-increased deductible expenses.

Tip: It may pay to accelerate income into 2011 if you think your marginal tax rate will be much lower this year than it will be next year.

Tip: If you know you have a set amount of income coming in this year that is not covered by withholding taxes, increasing your withholding before year-end can avoid or reduce any estimated tax penalty that might otherwise be due.

On the other hand, the penalty could be avoided by covering the extra tax in your final estimated tax payment and computing the penalty using the annualized income method.

If you have any questions about estimated taxes, please call us.

Caution: Alternative Minimum Tax (AMT) no longer just impacts the wealthy! Do not overlook the effect of any year-end planning moves on the AMT for 2011.

Due to tax changes in recent years, AMT impacts many more taxpayers than ever before because the tax is not indexed to inflation. As a result, growing numbers of middle-income taxpayers have been finding themselves subject to this higher tax.

Items that may affect AMT include the deductions for state property taxes and state income taxes, miscellaneous itemized deductions, and personal exemptions.

Note: AMT Exemption Amounts For 2011

  • $48,450 for single and head of household fliers;
  • $74,450 for married people filing jointly and for qualifying widows or widowers, and
  • $37,225 for married people filing separately.

Please call us if you’d like more information or if you’re not sure whether AMT applies to you. We’re happy to assist you.

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