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Gift Appreciated Assets to Family in Lower Tax Brackets – Year End Tax Tip

Posted by Concannon Miller on Wed, Dec 23, 2015

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tax_tips-_individuals.jpgJust in time for a last-minute gift idea – a gift of stock or mutual fund shares to family members in lower tax brackets can provide tax savings for you.

For 2015, the federal income tax rate on long-term capital gains and qualified dividends will remain 0 percent for taxpayers in the 10 and 15 percent brackets. While your taxable income may exceed the rates in the first two brackets to take advantage of the 0 percent tax rate, you may have loved ones in the lower brackets.

 If you do, you may want to consider gifting them appreciated stock or mutual fund shares. Those individuals will have the opportunity to sell the shares and apply tax advantage of the 0 percent federal income tax on the resulting long-term gains. 

Gifting qualified-dividend-paying stocks to family members eligible for the 0 percent rate is another tax savings opportunity.

Please refer to the important notes below involving gifting limits and the potential “kiddie tax” for children under the age of 24.

Important note:  Capital gains are considered long-term if the holding period exceeds one year.

If you receive a gift of property and your cost basis in the gift is figured by using the donor's basis (such as in the gift of appreciated stock), then your holding period includes the donor's holding period. This is known as "tacking on," because your holding period adds to the original donor's holding period. However, if your basis in the gift is determined by the fair market value of the gift (such as with a gift of stock that has decreased in value), your holding period starts on the day after the date of the gift.

Also, consider gift tax consequences before making a gift. The annual gift tax exclusion remains $14,000 per person for 2015 (or $28,000 for married couples). If you gift assets in excess of these annual exclusions to an individual, it will reduce your $5.43 million gift and estate tax federal exemption or be subject to gift tax if you’ve already used up your lifetime exemption. 

Also, keep in mind that if the recipient you gift to is under the age of 24, the “kiddie tax” rules could cause some of his or her capital gains to be taxed at their parents’ rate. The “kiddie tax” rule takes affect for those under 24, that are still full-time students (under 19 if not a full-time student) and have unearned income in excess of $2,100 (for 2015).

It's almost 2016 - are you still concerned about your 2015 taxes? Check out our prior year end tax tips, or call us for custom advice for your business or personal tax returns.

Topics: Individual tax planning

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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