Question:My daughter is getting married early in 2002. In anticipation of her marriage, I gave her a gift of $10,000, and I plan to give her an additional $10,000 in 2002. How can I claim the $10,000 gift on my tax return for this year and next?
Question:I received an inheritance from my spouse, and I would like to give my daughter and her husband a gift of money. How much can I give? I paid taxes on the inheritance already.
Question:One part of our financial planning is to provide our daughter with a solid financial base to begin saving for her own retirement. We were wondering if we could gift her a fund we have been building. It would be less than $50,000. Are there any penalties for doing such an act?
Answer: With so many generous parents out there, it pays to review some of the rules about giving financial gifts. If it becomes an issue, the gift tax is owed by the giver of the gift, not the recipient.
It's also important to know that there is a change in the law starting in tax year 2002. In 2001 you could give as many people as you wished annual gifts of $10,000 each without triggering the federal gift tax. If both spouses joined in the gift, you could give away $20,000 to each of your children.
For gifts given in 2002, that exclusion increases to $11,000 for an individual and $22,000 per couple.
Besides giving your kids a financial head start, making a gift can also be an attractive estate-planning tool for parents (and grandparents) who would like to distribute assets from their estate before they die.
While such gifts can reduce the taxes on your estate (if that is an issue), note this: They have no immediate impact on your income tax. Unlike charitable donations, gifts to individuals can't be deducted on your return.
Furthermore, if your annual gift exceeds the $10,000 individual exclusion for 2001 ($11,000 for 2002), you will have to file a gift-tax return.
While any tax you owe may be offset by the lifetime gift-tax credit, you can avoid this complication by keeping your annual gifts within the exclusion limit.
Have a question about kids and finances for Dr. Tightwad? Write to 1729 H St., N.W., Washington, D.C. 20006. Or send an e-mail message to jbodnar@kiplinger.com.