Gifts
can help reduce Estate and Income Taxes.
By giving away assets while you're alive, you can significantly trim
the value of your taxable estate. That's beneficial if you've
accumulated a fair amount of wealth. For more information click
here
Plan Ahead
to Shape the Future
If you want
to help your grandchildren through college, there are several options
to help pay their expenses and trim your family's tax bill at the same
time. Here are three tax-wise tips to get the maximum bang out of your
education buck:
Write
a check
The tax law lets you give $12,000 in cash a year for 2007 —
or $24,000 if your spouse contributes — without having to pay
a gift tax (up from $11,000 and $22,000 respectively for 2005). Just
write out checks and give them to your grandchildren. If the children
still have a few years before college, set up a custodial account at a
bank, mutual fund or brokerage firm. The money can be used for tuition
or other college-related expenses.
Give
stock
If you give appreciated stock or other investments to your
college-bound grandkids, your family can slash the capital gains tax
bill. Let's say you're in the 33 percent tax bracket and you want to
sell stock you've owned two years to free up some cash for tuition. For
stock sold in 2005 or 2006, you'll wind up paying a 15 percent capital
gains tax rate on the profit. But if you give the stock to your 18
year-old teenage grandson, he can sell the assets and pay only 5
percent tax on the gain, assuming he’s in the 10 or 15
percent tax brackets. This saves your family a nice chunk of money that
can be applied toward college expenses.
(NOTE: According to theta Increase Prevention and Reconciliation Act
signed by President Bush in May 2006 the five percent capital gains
rate is effective through 2007. For 2008-2010, the rate will drop to
zero. The same preferential treatment will also apply to qualified
dividends received through 2010.)
Pay tuition yourself
Under current tax law, unlimited tuition payments can be given directly
to a college with no gift-tax implications. The catch is the money
cannot pass through the hands of grandchildren (or their parents)
first. It must go directly from your account to the university. This
might be appealing if you're worried about the youngsters spending it
frivolously.
This tax break
applies only to tuition and can’t be used to pay room, board
and other college expenses. However, you and your spouse can still each
give the child a tax-free cash gift of up to $12,000 in 2007 to cover
those other expenses.
