Understanding Lawyers - Don't Think the WorstUnderstanding Lawyers - Don't Think the Worst


About Me

Understanding Lawyers - Don't Think the Worst

I got into a car accident when my daughter was 2 years old. My daughter was not injured in the crash, but I was. The accident was caused by a distracted driver talking on her cell phone. The driver insisted that I was attending to my daughter and I took my eyes off the road. I unfortunately had many medical bills to pay and I had very little time to fight with insurance companies over settlement payments. I was concerned about the cost of an attorney, but I met with a lawyer anyway to help with the accident claim. The lawyer relieved my stress and dealt with the insurance company and the other driver. I want you to know that lawyers can be helpful, kind, and caring. Most people think the worst of these professionals, but I want you to know that lawyers should not be feared or avoided.

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The Gift, Tax, And You

An important part of estate planning involves giving gifts. Some people with large estates try to give away a portion of their assets to friends and family to avoid paying federal estate taxes. The IRS, however, places a tax on gifts to prevent people from simply giving away all of their assets before they die. Here are some of the main points to remember about gifts and taxes. 

Definition

The IRS considers any transfer of money or other property to be a gift, unless you receive full compensation. Whether you actually consider the transfer to be a gift or not is irrelevant.  This may include loans where you do not charge interest or where you receive less than the market interest rate.

Exclusion 

The IRS has an annual exclusion rule that allows you to give gifts tax-free, as long as you remain under a certain limit. The limit, which changes periodically, stands at $14,000 per individual as of 2015. If you go beyond the limit for a particular person during the year, then the amount over the annual exclusion is taxable. The tax-free limit is doubled for married couples who give gifts. 

Spouse 

A key exception to the annual exclusion rule involves giving gifts to a spouse. In most cases, you have the right to give an unlimited amount of property to a spouse without being liable for taxes. This exception only applies if your spouse is a United States citizen. If the spouse is not a citizen, there is an annual exclusion limit in effect. The limit for non-citizen spouses, however, is much higher than for other individuals. 

Direct Payments 

Another important exception to the gift tax rules concerns direct payments made to medical and educational providers. You must pay the provider directly to avoid the tax. You cannot give the money to an individual so that they can pay the provider themselves.  

Political 

In some instances, contributions that you make to a political organization are free from taxes. The tax regulations surrounding political gifts, however, are very complex, so make sure that you get expert advice before making a contribution. 

Deduction 

As a general rule you may not deduct your gifts on your income tax return. The main exception to this is when you make a donation to a qualified charity. 

Giving gifts is great way to both help others and reduce the taxable portion of your estate. For further information,  talk with an estate planning attorney in your area, such as Vandeventer Black LLP.